As Economy Falters, Prepaid Wireless Grows

United States consumers are looking everywhere to cut costs in this uncertain economy, but it doesn't appear they are willing to ditch their wireless service entirely. Prepaid and no-contract cellular providers like MetroPCS and Leap Wireless are reaping the benefits of these cost-conscious users, according to new data released by the companies.

For the fourth quarter of 2008, MetroPCS had the highest quarterly subscriber additions in the company's history, with 520,000 new customers. This represented a 74% increase in year-over-year additions, and the company has seen its subscriber base grow by 35% or more for six consecutive years.

"We are very pleased to report fourth-quarter net additions of 520,000, the highest quarterly net additions in company history," said MetroPCS CEO Roger Linquist in a statement. "During the fourth quarter and for the full year 2008, our strong subscriber growth continues to prove the resiliency of the MetroPCS business model in the midst of the current unprecedented economic environment." The company offers wireless subscribers flat-rate unlimited calling services with no contract for about $40 a month. MetroPCS ended 2008 with about 5.4 million subscribers, and it had a churn rate of 5.1%, which is relatively low for a no-contract provider.

Leap Wireless, which is the parent company of mobile operator Cricket, also had a good quarter with approximately 385,000 net customer additions. The company also competes with home Internet providers by offering a prepaid broadband plan, and it added about 79,000 new wireless broadband customers. Overall, Leap said it ended 2008 with about 3.8 million customers.

While the prepaid and no-contract market is growing rapidly, it's still dwarfed by the major U.S. carriers. AT&T, Sprint, T-Mobile, and Verizon Wireless have more than 230 million subscribers among them. But MetroPCS and Leap recently signed a roaming agreement that will eventually enable the companies to offer nationwide service. This could revive merger talks between the two companies, which could possibly create a fifth nationwide wireless carrier.