The latest theory from Wall Street is that post-paid subscribers are better than prepaid subscribers are. The assumption is based on the fact that prepaid customers tend to buy phones that are cheaper, spend less for services, and may change to other carriers. On the other hand, post-paid customers will be spending more on phones and services, and stay with the same carrier for long.
The Trend Hits AT&T
According to MoffettNathason, AT&T is gaining more on their prepaid customers, and has added 365,000 prepaid customers this year. According to BTIG Research, AT&T lost 266,000 postpaid subscribers in the second quarter and it is the seventh consecutive decline. Overall, where the prepaid customer base of AT&T increased by 21%, postpaid customer base growth was hovering at a meager 1%.
AT&T CFO, John Stephens says that the best customers in postpaid are far better than worst customers in prepaid. During a conference call with the analysts, he said that the average revenue that they obtained from the postpaid customers was only $35, where the average service revenue that they collected from prepaid customers came closer to $42.
“So from that standpoint, the economics are better, and it is being shown in our margins,” Stephens said. “We think of branded customers and try not to make distinctions on classification, really make distinctions on economics, and I think it’s showing up in our profitability.” Stephens further added that the profit margins are fairly high even though wireless revenue was down slightly.
As per Craig Moffett, “Profitability is improving, largely as a consequence of lower churn and upgrade rates that boosted the margins of the two wireless segments. But with a fixed cost business like telecom, it is hard to sustain margins forever when revenues are declining.” Many analysts do not think that the strategy of Stephens will be working for long time.
AT&T is trying different methods to increase its wireless customers. The telco is adding low cost satellite TV customers for DirecTV and is dropping expensive maintenance requiring cable TV customers at its U-Verse unit. AT&T is also working on attracting more fiber optic broadband customers, and is trying to move customers to cheaper virtualized networks. The company hopes that both profit and revenue would see a substantial growth if all the transitions are a success.