U.S. pre-paid mobile growing, but to remain small

The number of pre-paid mobile phone customers in the U.S. is less than 20% of all mobile phone customers, far behind the 65% level seen in Europe and some other regions.

While the number of pre-paid subscribers in the U.S. is expected to grow at healthy rates in coming years, several experts say the U.S. will never come close to the percentage of pre-paid users seen in Europe and elsewhere, even if cheaper smartphones flood the pre-paid market, as many predict.

Pre-paid refers to customers who pay in advance for voice minutes or data usage, as opposed to post-paid customers who agree to a credit check and a contract that requires them to pay for voice and data usage monthly, once it has accrued.

Pre-paid customers in the U.S. are expected to grow at nearly 11% a year through 2013, says Gartner. The growth isn't only due to customers tightening their belts during the recession, because the surge has been underway for years, Gartner studies have found.

Gartner said about 280 million mobile phones will be in use this year, of which 54.5 million will be on pre-paid accounts and 220.8 million post-paid.

Pre-paid users will grow at nearly 11% each year through 2013, nearly triple the 3.9% annual growth rate for the same period for post-paid.

Pre-paid finds its place

Part of the sizable expected growth for pre-paid is because take-up is acceleration from a smaller base. Also, mobile phones are popular among young people and other groups who do not have credit to be able to set up a post-paid account.

The growth in pre-paid was noticed by Sprint Nextel Inc. when it said on July 28 that it would buy Virgin Mobile USA for $483 million.

"Pre-paid is growing at an unprecedented rate with consumers keenly focused on value," Sprint CEO Dan Hesse said at the time.

Sprint, which has about 40 million subscribers and has been scrambling to find ways to attract customers in recent quarters, will integrate the 5 million pre-paid Virgin customers when the deal closes into a larger mix of services, a Sprint spokesman told Computerworld today.

"We want to put together a strategy that works for us as a whole," the spokesman said. "If you look at the pre-pay customer, they can move up to [being] post-paid and to more data-centric, versus seeing them move away to another carrier."

Reading into the recession?

Virgin Mobile CEO Dan Schulman told analysts Monday that the recession had not been the only reason pre-paid had experienced a recent uptick, but he did say that the downturn had raised the public's awareness of the pre-paid option. "For the very large chunk of the population, pre-paid is a viable option and one that I believe will be with us even the economy improves," Schulman said.