Verizon's Shammo: TracFone is 'our prepaid product'

Verizon continued to bleed prepaid users, opting to cede the market to carrier-owned brands such as MetroPCS and Cricket. Meanwhile, the nation's largest mobile network operator considers TracFone its prepaid offering.

Verizon lost 177,000 net retail prepaid users in the first quarter, which actually marked a slight improvement compared to the 188,000 it lost during the same period last year. While other operators are still fighting over those users, Verizon CFO Fran Shammo suggested those losses are an acceptable sacrifice as the operator focuses on more lucrative users.

"Look, coming into 2015 and again in 2016 we said that the top priority would be to maintain the high quality of the base," Shammo said during a quarterly earnings call with analysts. "We now have 48 percent of our base on the new pricing (for unsubsidized handsets paid via installments) and we continue to push for that…. Our retail prepaid is above market. We're really not competitive in that environment for a whole host of reasons and it's because we have to make sure that we don't migrate our high-quality postpaid base over to a prepaid product."

While a countless number of MVNOs offer prepaid services across the country, T-Mobile's MetroPCS and AT&T's Cricket Wireless have emerged as powerhouses. Sprint, too, appears to have nearly abdicated prepaid to the two carrier-owned brands, slashing marketing budgets for its Virgin and Boost Mobile brands.

It's difficult to say how effective Verizon's strategy is – the carrier no longer breaks out ARPU, for instance – but U.S. Cricket and MetroPCS are clearly gaining traction as Verizon and Sprint back away from prepaid.

"If you look at the competitive nature, (other providers) are doing it with sub brands," Shammo continued. "They are not really doing it with their brands. And quite honestly, we use the TracFone brand as our prepaid product."

TracFone, of course, provides services on the networks of every major U.S. carrier.

Shammo went on to say that TracFone "has been extremely successful for us," although Verizon no longer discloses reseller sales data. But as analyst Bill Ho observed via Twitter, TracFone parent América Móvil lost 3.2 percent of its worldwide prepaid base in 2015. And TracFone, the largest U.S. MVNO, lost 58,000 net customers last year as users fled its voice-only plans.

Margins from prepaid are razor-thin, of course, and Verizon's decision to sacrifice prepaid users may indeed be boosting its bottom line. The looming question, though, is how well AT&T and T-Mobile are monetizing their prepaid users -- and, perhaps, whether they can convert them to postpaid subscribers.

For more:
- see this Verizon conference call transcript

Related articles:
Verizon emphasizes cost cuts amid fairly solid Q1 earnings, revenues of $22B
Sprint's retreat from Virgin and prepaid underscore strength of MetroPCS and Cricket
TracFone loses 58,000 customers while parent América Móvil faces regulatory challenges in Mexico