Verizon Taps Prepaid Market Growth With 3G As Subscribers Migrate to 4G

With 4G LTE fast becoming the de facto standard for smartphones and carriers increasingly promoting their high-speed LTE networks, Verizon (NYSE:VZ) seems to be making plans for its soon to be outdated 3G network. Traditionally a player that has preferred going after high-value contract customers, the largest wireless carrier in the U.S. warmed up to prepaid subscribers over the holidays with a double-data promotional offer. The promotion, which runs through January 31, has Verizon offering subscribers 2GB of data instead of the usual 1GB associated with its $80 unlimited-talk-and-text prepaid plan. ^[1] The catch here is that the subscribers will be able to use only 3G for data and not 4G LTE. By limiting 3G for prepaid data promotions while also selling 4G smartphones with postpaid plans, Verizon seems to be planning ahead by looking for ways to fill its 3G network as 4G migration picks up speed.

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LTE migration picks up  pace

LTE adoption has so far not been frenetic since the technology wasn’t mature and handset makers were therefore reluctant to promote the technology widely. Consequently, Verizon has only been able to convert less than 17% of its postpaid base to 4G LTE, as of last quarter. 4G adoption rates have however picked up some serious pace since the start of the year when Verizon had only about 5% of its postpaid subscribers using LTE. And now, with the iPhone 5 as well as a number of high-profile smartphones launching with LTE support, carriers will be expecting LTE migration to happen at full steam.

Verizon has led from the front in laying out a nationwide high-speed LTE network and is therefore likely to see its subscribers migrating off 3G sooner than most.The carrier’s LTE network covers more than 250 million Americans in close to 420 markets across the U.S. In comparison, AT&T has a LTE coverage of 150 million people while Sprint has only just begun its LTE rollout and covers 43 U.S. markets currently. Both AT&T and Sprint expect to catch up with Big Red next year but U.S.’ largest wireless carrier is likely to see a faster 4G migration in the initial stages at least.

3G could be used for prepaid growth

As 4G usage proliferates, 3G will be relegated as back-up in those regions where Verizon doesn’t have 4G connectivity. However, with Verizon’s 4G footprint likely to exceed 3G’s in the long term, its 3G network will be largely empty one or two years out. Verizon will look to shut down the network then but that could again take a few years. It would therefore benefit Verizon if it manages to add prepaid subscribers on this network, seeing that it has room to grow in a market it ignored in the past.

With a little over 5.5 million prepaid subscribers, Verizon currently has less than 2% prepaid share of the overall mobile market. In comparison, AT&T and Sprint have about 2.5% and 5% prepaid market share respectively. Moreover, there is a growing number of prepaid smartphone users that are choosing to go with the smaller carriers rather than the tier 1 players. NPD Group recently noted that about 70% of non-contract smartphone buyers switched from a tier 1 carrier to a smaller wireless provider. Verizon will be looking to tap this market and put its rapidly depleting 3G network to some use before the eventual shutdown in the long-term.

Moreover, with the vast 3G network up for use, Verizon could promote unlimited voice plans at higher than average prepaid ARPUs without additional CapEx investment. It might however have to lower its prepaid prices, which are currently more expensive than most competitors, in order to gain prepaid market share. Verizon’s unlimited $80 prepaid plan is available for $50 or less at the smaller carriers.

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