Bullet Point Analysis: Boost Mobile Moves Defensive - The Battleground 40, 50, 60 Price Points

WHAT IS IT?

On May 6, Boost Mobile replaced its old monthly plan portfolio with a new Unlimited Select plans at three price points and specific data thresholds.

ANALYSIS

The prepaid sector is often characterized by high churn profiles and low credit scores. However, it is also a sector with high revenue and subscriber growth potential, courting feature phone upgraders (either prepaid customers or postpaid users looking for better deals in prepaid).  Sprint has made big bets on prepaid as a corporate growth engine. Prepaid subs represents 28% of the overall Sprint customer base.  Various sub brands (Assurance, Boost Mobile, Virgin Mobile) address specific prepaid demographics.  Yet 1Q14 was a bad quarter for prepaid with 465K losses, most of it blamed on Assurance brand losses. Boost's unlimited plans (along with Virgin Mobile's Beyond Talk plans) that garner higher monthly ARPU is clearly an important revenue component to Sprint's prepaid strategy and needs to be protected.  

Now with Boost's new plans at $40, $50 and $60, these numbers are the magic competitive price points to wage the prepaid war in mid to late 2014.  Boost Mobile is merely catching up defensively to rivals that already presented those price points and sometimes the same data thresholds.  

• AT&T's flanker brands Aio/Cricket is in integration mode but Aio's price points and data thresholds match directly with the new Boost plans.  AT&T has been very vocal about being aggressive in attaining growth at the 'low end' using Cricket and will be a threat Boost.   Tactically, it's likely that the unified Cricket portfolio will come out with the added lower $40 price point (Currently $50-$70).  Moreover, AT&T's mid-April GoPhone plan action added a $40/500 MB plan to match T-Mobile's $40 Simple Starter launched earlier 10 days earlier.

• T-Mobile's MetroPCS plan portfolio already has the same price points and always has been a strong competitor to Boost. By T-Mobile's 1Q14 prepaid earnings metrics, MetroPCS is doing well and though T-Mobile doesn't break out its contribution, the company added 465K prepaid users.  T-Mobile's internal code word in launching new markets is Apollo. The company is up to 30 new markets and continuing.  This Metro expansion has not only eaten into Cricket marketshare, it certainly has impacted Boost.    

COMPETITIVE IMPACT?

Every competitor has its own differentiation despite the same price points. The challenge is to communicate this to the target audience and cut through the usual selection criteria of device and plan pricing.

• AT&T's GoPhone portfolio has the advantage of built-in international calling and messaging while rivals MetroPCS and Boost need international package add-ons.  
• The new Cricket has high hopes and promise for its parent. Its primary focus is to recapture lost ground from MetroPCS and Boost will be impacted in the mix. It's uncertain if Muve music, which was an apparent differentiator, will continue to be promoted.  UPDATE: Muve Music is said to be on the auction block. Certainly, at a minimum, the expanded underlying AT&T LTE footprint and perhaps speed will be touted.
• MetroPCS continues to expand in an effort to migrate its legacy CDMA users (featurephone) to new LTE handsets on top of expanding its distribution to grab marketshare in new markets.  Boost's plans again are catching up to MetroPCS.

Boost Mobile needed to make its latest portfolio change to keep up with its main competitors.  There aren't any features in the new Unlimited Select plans that stand out against competitors. Boost Shrinkage discount approach is unique but how well does that retain a fickle customer segment?  Cricket and AT&T plans stand out as unlimited international texting (and limited international calling for GoPhone) are baked in.  Metro and Boost need to figure out if these features are competitively substantial in winning prepaid monthly adds.   
     

Bullet Point Analysis: AT&T GoPhone Adjustments, Defensive & Offensive

WHAT IS IT?

On April 18, AT&T announced two smartphone GoPhone prepaid plan adjustments and introduced a Wal-Mart specific plan:

• The $60 plan increased data from 2 to 2.5 GB + enabled Wi-Fi hotspot capability + unlimited talk 

• The $40 plan increased data from 200 to 500MB + 500 minutes of talk 

• Available at Wal-Mart stores nationwide, a new plan with 1GB of data for $45 a month + unlimited talk

Existing $40/$60 plan customers will automatically receive these increase data levels.  Moreover, not announced, the smartphone $50 unlimited calling and texting plan with WiFi-only (no data allotment) is no longer available. Though the plans are supposed to kick off on April 25, the changes are already available online.

ANALYSIS

The plan action with three components are a mix of defensive and offensive moves.  Anytime a company makes a change, there are clearly causes and effects.  

• As I wrote in my previous post on T-Mobile's newly launched $40 Simple Starter, that plan threatened prepaid competitors.  Eight days later, AT&T shored up its entry $40 GoPhone plan seemingly in a defensive move to match Simple Starter data threshold of 500 MB.  On the surface, it's merely a match but AT&T provides a differentiation for a specific segment of prepaid audience, those who text internationally. Still, Simple Starter addresses the needs of the talker as the plan offers unlimited calling; AT&T only provides 500 anytime minutes.  Against Verizon's $45 ALLSET, $40 price point comes out ahead for the price sensitive though Verizon's add-on data options offer better value. 

While the $40's nemesis was T-Mobile, the $60 GoPhone plan goes up against the Sprint's prepaid SmartPlus unlimited plan at the same price point with the same 2.5 GB threshold (throttled to 3G afterwards).  Sprint's other prepaid brands Boost and Virgin Mobile match other competitors such as MetroPCS and Cricket best.

• Finally, the tell tale sign of an offensive against Tracfone's Straight Talk is a Wal-Mart only plan. The $45/1GB plan matches the price point exactly though StraightTalk is unlimited and throttled after 2.5GB. The AT&T brand, WiFi hotspot tethering, as well as LTE access could be a differentiation but traditional value Wal-Mart shoppers may simplistically look at more data.  

• The ace in the hole for GoPhone is international messaging that competitors do not offer for the respective price points. This will appeal stronger to a specific subscriber demographic.  Provided that AT&T heavily markets this either in niche advertising or social channels, it may be lost.

AT&T's prepaid moves should be construed as urgent since it has lost prepaid subs for the last two quarters ( -32K 4Q2013 & -50K 1Q14).  Though the year-over-year view (-166 4Q12 & -184K 1Q13) looks better, the long and short of it is AT&T lost subs. By contrast, Verizon Wireless has had positive prepaid growth for the last eight quarters, decent for a primarily postpaid company whose prepaid subs are less than 6% of the retail/branded customer base.

COMPETITIVE IMPACT?

• AT&T's GoPhone move is just one component of a reversing prepaid strategy which mainly hangs it hat on the new Cricket market expansion. T-Mobile's MetroPCS brand had been targeting AT&T and Cricket heavily with the 'Apollo' market launches.  In the 1Q14 earnings call, AT&T said that the new Cricket will re-launch at the end of 2Q14, likely targeting T-Mobile and MetroPCS trying to reacquire lost subs. T-Mobile's entry plan featurephone switching growth may be blunt if AT&T markets heavily against that segment.

• Sprint overall needs to consider international messaging for postpaid and SmartPlus given this AT&T action. It may be too early to see how Sprint branded prepaid performs since Sprint doesn't specifically break out brand performance. 

• Verizon's ALLSET plan's $45 price point doesn't match well but it may be unlikely that a plan change is unnecessary unless AT&T makes inroads for a couple of quarters and attains notable marketshare.

Bullet Point Analysis: AT&T's Quick & Expected Mobile Share Value Adjustment

WHAT IS IT?

On Saturday March 8, AT&T announced several minor adjustments to its Mobile Share Value plans that went into effect the next day.   Specifically, 

• The 2GB plan's pricing was reduced from $55 to $40
• The 1GB and 8 GB plans were retired.
• AT&T cloud storage (AT&T Locker) increased from 5GB to 50GB.

ANALYSIS

This minor adjustment was expected as AT&T moved to offset an outstanding vulnerability against Verizon Wireless' More Everything launch on February 13.  To recap, Verizon adjusted some price points, introduced stateside international messaging and increased Verizon Cloud storage to 25GB. With this Saturday announcement, AT&T has now responded specifically to one up/change the playing field against its largest competitor. 

Let's look at the responses:

• Domestic international messaging - In about 12 days, AT&T responded and automatically included this feature into its Mobile Share Value plans.

• Subscriber cloud storage now 50GB, is double that of Verizon's 25GB.  Moving from 50GB from 5GB is substantial, and if the carrier can position itself as an attractive alternative to OTT players [OneDrive (7GB), Google Drive (15GB), iCloud (5GB), Amazon Cloud Drive (5GB), etc.] and get users to actively use the cloud, it can help the subscriber churn profile.  

• Finally, the meat of the pricing move - the $40 2GB level.  Recall Verizon's More Everything launch created a competitive pricing vulnerability with AT&T's two levels - 1 and 2 GB. These levels were $5 more expensive than Verizon and in the premium carrier switching game, this is significant.

• Rather than taking from the tired price parity playbook, AT&T changed the value proposition and doubled the data at the same price point (see below chart).  Now it is at a pricing advantage. To help the cause, the 1GB plan has been retired. This gives direct retail and channel sales reps a no-brainer price savings proposition to close their deals.  Also interestingly, the $90 8GB level has been removed as the absence of the data tier and price point helps the carrier push the 10GB level that it has been running in commercials and advertisements. The price value advantage is further expanded as AT&T's Next per smartphone price (>10GB) is $15 versus Verizon's $20 (>8GB).

• Oddly enough, the price vulnerability at the $130 price point is untouched. Whether the subscriber base hasn't moved to that level of shared consumption or competition may be an explanation. However, small/medium business accounts may be playing in that range.  This level bears watching.

COMPETITIVE IMPACT?

• Verizon will likely respond now that it has a pricing disparity.   On the rest of the portfolio, while Verizon can position itself a giving more data plan choices with 17, AT&T's portfolio has now simplified to 10. Plan rationalization is the logical step.  All these choices may be too many for the entry data customer(s). These entry data customers that are migrating from feature phones or standard 3G customers are good targets for AT&T.  Verizon has over 50 million of these customers and if AT&T (or competition) can bleed off a percentage of this, this would be worrisome for Verizon Wireless' 2014 smartphone growth/upgrade trajectory. The stakes are high. 

• T-Mobile doubled its data allowances a day ahead of AT&T's adjustment. Its entry offering of 1GB is stronger coupled with its price leadership. However, T-Mobile does not have any cloud storage offering. It stands to reason as it hasn't made a huge cloud storage infrastructure bet as AT&T and Verizon has made in the past 2-3 years. These competitors have owners economics in its infrastructure. If it is a big deal, then T-Mobile will partner with a provider (T-Mobile Netherlands works with Google to give 5GB). 

• Sprint now has seen a great deal of competitive action since its January Framily launch. That Framily campaign centers on 1GB usage and over time, will 1GB be obsolete? Clearly, the upsell to these customers is going to the Unlimited, My Way plans. The bigger worry and expected move will be domestic international messaging.  All competitors include this with their plans and Sprint does not. It's an add-on.  In the cloud storage war, though Sprint got in the game in late January with a partnership with Pogoplug, it now  provides a measley 5GB (compared to AT&T and Verizon) but its $5 unlimited storage add-on is compelling for some.  Finally, with all this competitive noise, Sprint needs to complement its Framily marketing to fight the increased marketing from all competitors.  

• All competitors will still have to deal with T-Mobile's announcement (Odd there wasn't an UnCarrier number associated with it) of free international in-country texting. This little detail will be significant for multinational business accounts whose employees roam.  Competitors have until March 23 when this gets implemented.

It's likely that the wireless landscape will continue to evolve in 2014 and adjustments will continue until an inflection point happens when everyone realizes that margin erosion will dampen their 2014 guidance. But then again, many CFOs explain that competition is already baked into these numbers.