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Boost Upends the Industry with a $50 National Unlimited Calling Plan
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By Bill Ho, Current Analysis Research Director, Wireless Services
Jan 15, 2009
Event Summary
January 15, 2009 – Boost Mobile has announced the launch of its new Unlimited Calling plan. On January 22, Boost Mobile will introduce a new prepaid plan offering unlimited anytime calling, text messaging, wireless Web and walkie-talkie services with a national calling area for $50 a month.
Analytical Summary
• Current Perspective: Very positive on Boost Mobile’s new Monthly Unlimited plan because the new aggressive plan provides a huge price differentiation to other prepaid providers offering regional unlimited plans and those who offer national hybrid plans. At the same time, the $50 price point proves a sharp contrast and a clear value to unlimited calling plans in the postpaid sector pegged at $100. Boost’s Monthly Unlimited plan also should resonate as a wireline substitution alternative that provides not only unlimited calling, push-to-talk, messaging but also some limited Web access capability. To truly make a mark, Boost needs to increase handset choice and return the brand to the public’s conscious.
• Vendor Importance: Very high to Boost Mobile because in the competitive prepaid sector, it was losing its customer base for many quarters, especially on the iDEN platform. Yet its CDMA-based Unlimited by Boost plan was successful, at least in the beginning, in growing customers. It was only logical that an unlimited plan would fuel Boost’s recovery. At the same time, the impact is also very high to parent Sprint because a potential high take rate for the new Boost Monthly Unlimited plan will provide a return on investment of its underused iDEN infrastructure, as iDEN subscribers were leaving en masse quarter after quarter.
• Market Impact: Very high on the wireless service segment because a $50 national unlimited mobile calling plan will attract subscriber attention not only in the prepaid space but also the postpaid space, making people question the gap between Boost’s $50 offering and the postpaid variations pegged at $100. As this Monthly Unlimited plan is directed squarely at MetroPCS and Leap, Boost will eat into these regional unlimited carriers’ marketshare and by association encroach into wireline providers’ (i.e., telcos and cable companies) domains.
Current Perspective
We are taking a very positive stance on Boost Mobile’s new $50 nationwide Monthly Unlimited plan because the combination of price point and features will surely have heavy repercussions in the wireless and wireline sectors. Postpaid unlimited calling plans pegged at $100 are now double what Boost offers, while regional unlimited carriers can match the price point but at nowhere near a national footprint.
Boost’s first foray into unlimited calling began in the spring of 2007 where it launched a CDMA-based Unlimited by Boost product against MetroPCS and Leap Wireless markets in Texas and California (please see CTIA Wireless 2007: Unlimited by Boost Takes on MetroPCS and Cricket in California and Texas, March 30, 2007). Throughout the year, Boost expanded into more MetroPCS, Leap Wireless and even smaller regional unlimited carriers’ markets (e.g., MobiPCS in Hawaii). Unlimited by Boost was priced in line with the competition’s portfolios but differentiated with a larger home calling area and a low $0.15 per minute roaming. The service concept also was to use the CDMA network as it provided better capacity than the aging and troubled iDEN one. But as quarters passed, both Boost and its parent Sprint’s fortunes soured as postpaid and prepaid subscribers were exiting in droves, especially iDEN-based customers. At one point, Boost’s CDMA-unlimited plan had in essence been put on hiatus as the price point inflated to $70 per month – uncompetitive against MetroPCS and Leap, resulting in churn. Meanwhile in the summer of 2008, prepaid competitors Virgin Mobile and Net10 made their own unlimited calling splash but this time at $80 per month with the added benefit of a national footprint.
The move to iDEN as a platform for the unlimited plan may be perplexing as the technology is aging and has limited data capability. But throughout the iDEN subscriber losses, the iDEN network has gotten more robust and capacity added. The combination of iDEN subscriber flight and a stronger iDEN network is logical for hosting the Boost unlimited offering. Moreover, Boost was always iDEN-based and managing a CDMA and iDEN handset portfolio is not ideal. With the technical aspects addressed, Boost’s addressing of price and feature differentiation was necessary. As MetroPCS and Leap are the biggest targets, the $50 price point hit squarely at these carrier’s higher end plans, matching many of the same features -- unlimited national calling, unlimited messaging and unlimited Web. But Boost needed to trump these competitors, and with its proven iDEN walkie-talkie service combined with the most powerful differentiator -- a true national footprint – Boost now offers two features that MetroPCS and Leap cannot match. In the downstream effect, while Virgin Mobile and Net10 could offer a national footprint, the $30 price gap cannot be justified to the value user. This holds true for any voice-centric postpaid customer who for the same price point would be looking at about 450-600 anytime minutes for $40. On the wireline side, unlimited calling with VoIP companies such as Vonage and incumbent local exchange providers range from $30 to $40 per month. The added mobility, messaging and Web access benefit may help fence sitting cord-cutters to buy Boost’s Monthly Unlimited plan. Therefore, Boost’s Monthly Unlimited plan spells potential trouble for many sectors. While all the ingredients are in place for a Boost bounce back, there are some elements that may limit uptake. First and foremost is the Boost brand. While it’s a long recognized brand in prepaid circles, it may not be as well-known to the general mainstream postpaid and wireline audience. Additionally, the company has shifted from a lifestyle company that marketed to the urban and extreme sports set to now a seemingly value player without a solid identity. After consumers get past the price, the thin device portfolio may disappoint as there are less than five distinct iDEN handsets available. Although more devices are planned, the company needs to step up model introduction to further potential subscriber interest. Usually it takes several quarters to gauge success. In Boost’s case, it’s clearly the number of net additions that they’ll post for the remainder of 2009. At one point, Unlimited by Boost produced over 340,000 net additions in one quarter. The bar is there for this new iDEN-based plan to meet or beat.
Positives and Concerns
Competitive Positives
• Boost Mobile has set the bar in the industry for a mobile nationwide unlimited calling plan at $50. With more of a true national footprint, Boost trumps targeted regional carriers’ (i.e., Leap and MetroPCS) offerings at the same price point or higher. Against competitors Virgin Mobile and Net10’s national unlimited calling plans, the price gulf of $30 per month is yet another eye opener.
• Boost’s aggressive price point to some extent prevents national postpaid carriers from reacting and matching features and pricing. No postpaid carrier wants to enter into a price war that cuts into nice margins as preserving those margins is paramount. Moreover, larger carriers AT&T and Verizon Wireless stand not only to cannibalize their postpaid base but also their wireline business units. Moreover, as Boost is operating on the underused iDEN network.
• The benefit of the low and attractive $50 price point on top of the included features helps ultimately to reduce churn and increase ARPU. Given the lack of comparable or even close competitors’ plans on the market, Monthly Unlimited users will be hard pressed to jump for lack of anything better. Moreover, a large influx of $50 users can help push Boost’s current $31 ARPU higher.
• In the broader view, Sprint gets a return on investment on an underused iDEN infrastructure with plenty of capacity to support Boost’s unlimited efforts. Increasing iDEN subscribers via a prepaid unlimited plan is one way to stop the iDEN bleeding and rebuild the iDEN base. Moreover with more Boost PTT subscriber use, PTT may regain relevance in the consumer base and tangentially help parent Sprint’s Direct Connect postpaid endeavors.
• Boost has a compelling value proposition against wireline carriers. Although unlimited calling with Vonage and incumbent local exchange providers range from $30 to $40 per month, the additional mobility, messaging and Web access benefit may help fence sitting cord-cutters to buy Boost’s Monthly Unlimited plan.
• Against primary targets MetroPCS and Leap Wireless, Boost can claim nationwide capability and additional differentiation of unlimited built-in PTT. Although MetroPCS and Leap forged roaming agreements and marketed their coverage as unlimited nationwide calling coverage, that benefit is really just limited to approximately 300 cities.
Competitive Concerns
• While there is a distinct possibility that the Monthly Unlimited plans may grab switchers from the postpaid side, the most obvious postpaid subs will come from the Sprint Direct Connect users and cannibalize the parent’s postpaid revenue. While Boost claims that the prepaid and postpaid segments differ greatly, in tough economic times and when consumers are looking to minimize their monthly outlays, they will migrate to value regardless of prepaid or postpaid labeling.
• Boost’s device portfolio is limited compared to prepaid competition. While national competitors can serve up their entire postpaid portfolio and regional unlimited carriers MetroPCS and Leap can serve up 13 or more phone choices, Boost can currently muster only less than five distinct iDEN models.
• Although the iDEN coverage is national, it is not as broad as and as through as postpaid competitors’ networks. Even Sprint’s CDMA network has better coverage. Against Leap Wireless and potentially with MetroPCS, these competitors’ eventual implementation of 3G data into the service mix will highlight the data disparity between the 3G CDMA network and Boost’s aging data-limited iDEN host network.
• If all goes well and the Sprint and Boost are successful in rebuilding the iDEN base, the same scenario where lower-value prepaid users have the same access than higher-value postpaid users can potentially reprise. Sprint does not need the negative publicity of potential situations in which public safety personnel or business customers are unable to access the network due to congestion.
• Boost’s success in grabbing postpaid users will be limited by the nature of postpaid plans’ conditions of annual commitment and the associated high early termination fees. Moreover, across the postpaid base, the Boost brand is largely not known as postpaid users focus on the bigger corporate names as providers. The lack of familiarity may make potential users balk.
Recommended Actions
Recommended Vendor Actions
• Boost needs to quickly expand its device portfolio. Beyond plans, price point and value, consumers look to what interesting devices a service provider can offer. As it stands now, Boost’s portfolio is rather mundane. Boost should begin to bring QWERTY handsets into the mix to complement the unlimited aspect of its Monthly Unlimited plan.
• Like many prepaid players who are selectively going after high-value users, Boost should throw a bulk of its marketing resources to make this plan a success. In garnering a high number of users to the $50 Monthly Unlimited plan, a higher uptake would lift ARPU from its $31 (Q3 2008) mark.
• Boost should consider advertising in the same channels that MetroPCS and Leap Wireless employ against wireline operators (cable and telco).
• To close the gap against regional unlimited carriers offering “family” plans, Boost should follow suit with similar capability in which families with more than one Monthly Unlimited plan will receive a discount (e.g., $5 per month like Leap) provided that all callers are under the same account and paid for each month through a credit/debit card.
• Boost Mobile needs to continue to evolve its brand and make it more concrete and relevant to this new national unlimited calling offer. At one point, the company was a lifestyle company that appealed to the urban and extreme sports set. While some of that remains as the company positions itself as a value carrier, it’s unclear if the public understands Boost’s identity.
• Sprint should monitor network usage to ensure that its postpaid base have sufficient cushion for capacity. In markets where the possibility of oversubscription may occur, Sprint (and Boost) should consider limiting sales until more network resources can be made available.
Recommended Competitor Actions
• MetroPCS and Leap should not do anything for the moment. The carriers should monitor any subscriber churn to Boost in existing markets. As a short term measure, MetroPCS and Leap should turn the tables and focus on marketing its portfolio of lower price point plans and emphasize that users rarely go outside of their regional home calling area. Therefore, while a national capability is a nice to have, it’s probably not really necessary.
• AT&T, T-Mobile and Verizon Wireless should not modify their prepaid portfolios right away. It makes little sense that carriers that are with 32-83 million subscribers will react to a prepaid carrier whose customer base numbers less than 4 million. However, each carrier should closely monitor the pre and postpaid subscriber churn associated with Boost’s unlimited plan.
• Wireline competitors (i.e., AT&T and Verizon) who can offer a mobile component for triple and quad plays should consider deploying femtocells as either a customer loyalty tool or a small monthly amount ($10) to enable unlimited mobile calling from the home.
• Virgin Mobile needs to reenergize the competitiveness of its Pay As You Go (e.g., drop from $0.20 to $0.10 per minute) and hybrid segment. Now that its Monthly Plans from $50 and up have suddenly become unattractive, the MVNO can in the short term concentrate efforts for plans below $50 with adding additional minutes and/or building in messaging buckets. Developing prepaid a la carte 3G services will be essential to further data revenue beyond messaging and downloadable content.
• Net10 should consider matching Boost Mobile or dropping its own unlimited monthly plan altogether and instead concentrate on its $10 cent value proposition or lower priced hybrid plans.
Recommended End User / Customer Actions
• Wireline consumers looking at cutting the cord on landlines while having the flexibility of mobility should look into Boost’s Monthly Unlimited plan or even MetroPCS and Leap’s plans. However, if nationwide capability is required, Boost’s $50 price beats out competitive offerings from Virgin Mobile and Net10 at $80/month.
• Prepaid customers looking at the new Boost Unlimited plan should consider if data needs only go beyond messaging and simple Web browsing (at a relative slow speed). If faster Web browsing speed and additional data services (e.g., streaming video) then Virgin Mobile or Leap offerings should be considered as both have access to 3G networks.
• Postpaid customers considering jumping to Boost Unlimited should be aware of the termination fees associated with ending a postpaid contract prematurely.
Current Analysis provides comprehensive coverage of the U.S. wireless market through a combination of qualitative analysis and quantitative wireless price and feature tracking of the voice and data services, as well as the handsets available by the major U.S. carriers. This information is melded together in a web-based portal to provide rapid access to all relevant information. In the highly competitive U.S. wireless market, where strategies need to evolve on a weekly – if not daily – basis to maintain a competitive edge, Current Analysis is the only comprehensive provider of pricing and analysis. |
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