Sprint’s Postpaid vs. Prepaid Customers – Who’s More Valuable?

December 23rd, 2010 by Trefis Team
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Sprint (NYSE:S) competes with AT&T (NYSE:T) and Verizon (NYSE:VZ) both in the prepaid and postpaid mobile business. Postpaid customers are more valuable as they have higher levels of usage, higher data usage and lower attrition rates, which all lead to higher levels of ARPU (average revenue per user).

For this reason, Sprint and all of the major US wireless carriers mostly focus on postpaid users. However, we pointed out recently in an article that Sprint’s prepaid business is key component of Sprint’s business (Prepaid Market Could be Key for Sprint).

Taking into account both voice and data contributions, we wanted to see how much a prepaid vs. postpaid customer is worth to the $4.35 Trefis price estimate for Sprint.

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Assumptions

Let us assume that once a customer starts with Sprint, he or she remains a subscriber in perpetuity. His or her ARPU contribution will grow based on our voice ARPU and data ARPU forecasts, which we detail below. We expect voice ARPU to remain stable over the medium-term while data ARPU should grow at a steady pace given the increased usage of mobile internet and better network capability.

We then deduct the company’s wireless expenses, including the loss on handset sales and indirect expenses like capital expenditures proportionally, and discount these future cash flows.

What do you think the lifetime value of a postpaid vs. prepaid subscriber is?

A. Postpaid $417 vs. Prepaid $380

B. Postpaid $322 vs. Prepaid $244

C. Postpaid $537 vs. Prepaid $180

D. Postpaid $391 vs. Prepaid $149

Breaking Down Prepaid vs. Postpaid ARPU

We estimate that Sprint’s postpaid voice ARPU is a little over $33 per subscriber per month compared to $25 for a prepaid subscriber. The overall data ARPU stands at close to $15 per subscriber which is a mix of prepaid and postpaid, and if we breakup data ARPU in a ratio similar to that for prepaid vs. postpaid voice ARPU, we get postpaid data ARPU to be around $15.70 and a prepaid data ARPU of around $11.90. [1]

So postpaid ARPU (voice + data) is around $49 ($33 +$15.70) and overall prepaid ARPU is around $37 ($25+$11.90) per subscriber per month.

You can see the complete $4.35 Trefis price estimate for Sprint’s stock here.

Notes:
  1. Calculated based on voice ARPU ratio, total postpaid and prepaid subscribers and data ARPU [↩]