Verizon Wireless' New INpulse Plans Signal a Shift in Prepaid Stance

| November 2, 2007 | Wireless Services - U.S. | Competitive Intelligence Report

| Analyst: Bill Ho

Current Perspective: Positive
Vendor Importance: High
Market Impact: Very High

Event Summary

On October 31st Verizon Wireless formally launched new pay-as-you go INpulse prepaid plans. The three plans, known as Core, Plus, and Power, charge customers a daily access fee only on the days of use and include unlimited mobile-to-mobile calling within Verizon Wireless.

Analytical Summary

• Current Perspective: Positive on Verizon Wireless’ adjustment of its INpulse pay-as-you-go (PAYG) structure, providing three flexible plans to address different calling types (essentially light, medium, and heavy users) that incur a daily access fee only if the customer uses the service, which is a nice consumer-marketing message. Moreover, unlimited mobile-to-mobile calling and ultra-low per minute and texting fees are a psychological draw to prospective customers. On top of this, access to postpaid-like applications such as V CAST Music on demand and VZ Navigator will help increase the prepaid spending. However, a limited variety of starter handsets may tarnish the plans’ allure.

• Vendor Importance: High to Verizon Wireless, because the carrier needed to be get into the prepaid space with a competitive pay-as-you-go offering. Verizon Wireless' strategy had previously focused on the low-churn postpaid customer, but it cannot ignore the trend of flattening of postpaid growth and the competition's focus on the prepaid segment as an engine for continued growth.

• Market Impact: Very high on the wireless services segment, because Verizon Wireless has traditionally focused on the postpaid segment. Now, with these new competitive INpulse PAYG plans, it stands to break in big, riding on the carrier’s reputation for high reliability, broad coverage, and a large subscriber base for mobile-to-mobile calling. Competitors, especially the ones that have brought in larger prepaid net additions in the past, are bound feel an impact. Consequently, they may need to adjust their own PAYG plans to counter the INpulse plans.

Recommended Competitor Actions

• All prepaid competitors should note that Verizon Wireless really does not reward heavy users. Neither INpulse nor EasyPay offer any of the loyalty rewards found in competitors’ offerings, in terms of providing tangible monetary benefit or credit towards upgrading handsets.

• Alltel should tout its U Pay Per Day flexibility, letting the customer choose what features they want to be included based upon their needs. These include unlimited mobile-to-mobile, unlimited favorite-number calling, unlimited night and weekend minutes, or unlimited text messaging. Alltel has a good PAYG flexibility story and needs to sound it out much more.

• AT&T will need to adjust its GoPhone structure, hopefully not to match Verizon Wireless’ INpulse but to surpass it. The differentiation of customers paying only when they use the service is no longer relevant. When customers look for choice between the two largest wireless carriers, Verizon Wireless appears to have more variety. As the largest carrier, AT&T cannot have its prepaid market share eroded and it must do something substantial, not incremental.

• Boost Mobile should note that it is the only prepaid carrier capable of PTT functionality. Moreover, it should be looking to convert any prospective INpulse user in its Unlimited by Boost markets with the value of unlimited calling for less than the full monthly fee of the Plus and Power plans.

• T-Mobile should be seeking out INpulse Plus and Power users to convert them over to FlexPay. If these users are heavy messaging and voice users, they may be unaware of the attractiveness of FlexPay plans, which mirror the postpaid plans and add-on capability (e.g., less expensive messaging and Web access).

• Virgin Mobile should tout the wide array of handsets available in its portfolio. Not only are they numerous, but they are also far less costly than those in the Verizon Wireless prepaid lineup. From a plan perspective, Virgin Mobile should simplify its myriad of prepaid offerings, as there are too many confusing combinations. The more plan alternatives there are, the more likely the potential customer will get confused and opt for an alternative offer.

Recommended End-User Actions

• Prepaid customers who want the Verizon Wireless network now have the flexibility of three pay-as-you-go offerings from Verizon Wireless. Prepaid users will need to factor in where the bulk of their calling will be (i.e., within the Verizon Wireless network, night calling, outside the network, etc.) before they make the decision.

• Price-sensitive prepaid customers should do their homework in terms of plan availability. As with subscribing to any carrier, the proposition includes more than just the plan; affordable or desirable handsets are also part of the decision-making process.

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