Two of the largest prepaid cellphone service providers, Cricket and Virgin Mobile USA, are sweetening their services with no-contract iPhones.
It's the latest example of how consumers on a budget are benefiting as major wireless carriers go after that once-ignored customer group.
With the market for 2-year-contract phones saturated, even large carriers such as Verizon Wireless and AT&T also are marketing more aggressively to those who seek flexibility by prepaying for minutes and data in month-by-month contracts.
Major carriers "are focusing on prepaid as a growth engine," says John Weber, an analyst at tech research firm IDC. "It's not just for those who fail (a credit check). It's also for customers who want flexibility."
The marketing shift comes as growth plateaus among customers willing to lock in long-term contracts in return for phone subsidies. The number of "post-paid" customers fell in the first quarter of this year vs. the previous quarter, the first quarter-over-quarter decline in industry history, according to research firm Recon Analytics.
Meanwhile, IDC estimates that the retail prepaid market will grow 7.4% per year on average until 2016, outpacing the post-paid market (+1.3% per year on average).
Some moves that underscore major carriers' push for more of the prepaid market share:
-- Verizon Wireless launched a prepaid smartphone plan in April with unlimited voice and text and 1 gigabyte of data for $80 on its 3G network.
-- AT&T, which has sold unlimited pay-as-you-go plans for a while, started selling a new data plan that offers 1 GB of data for $25 a month. The value is twice as much as other similar AT&T prepaid data plans, says Deepa Karthikeyan, an analyst at Current Analysis. •T-Mobile last year introduced no-contract "Monthly4G" plans that allow customers to use any phone in its lineup.
-- Sprint said in April that its two prepaid service subsidiaries, Virgin Mobile and Boost Mobile, will deliver voice and data through the WiMax network, its fastest network now, although it is developing a faster data network for later this year.
Such moves "will further tip the scales in the (large) carriers' favor," says Karthikeyan. But smaller prepaid plan providers, like Leap Wireless' Cricket, TracFone, MetroPCS and U.S. Cellular, are hardly standing pat.
Cricket launched Muve Music service last year, giving customers unlimited song downloads for a monthly fee. It has gained 600,000 subscribers since the launch in early 2011. The company also plans to start selling iPhone on June 22, the first among prepaid carriers. Cricket's iPhone 4 will cost $399.99, with a $55 per-month plan that includes unlimited voice, text and data.
"We are now moving into a series of changes and there will be other premier devices. Having the right devices matters," says Doug Hutcheson, CEO of Leap Wireless.
MetroPCS, which started building its 4G LTE network in 2010, began selling Android phones in the third quarter of last year. In August, it'll begin selling handsets that will be priced below $150, says Tom Keys, the company's president.
Virgin Mobile USA, which is owned by Sprint, said Thursday it'll start selling the 8GB iPhone on June 29 for $549. A $30-per-month plan comes with unlimited data and text and 300 minutes of calls.
"Prepaid carriers are more nimble and can experiment with newer pricing and service models," Karthikeyan says.