• by Mark Walsh  @markfwal, July 28, 2009

With its $483 million acquisition of Virgin Mobile USA, Sprint is poised to dominate the prepaid phone market and take on value-oriented competitors like TracFone Wireless, MetroPCS Communications and Leap Wireless.

The deal, announced Tuesday, gives Sprint control of two of the biggest prepaid wireless brands in Boost Mobile and Virgin, with a total of more than 9 million customers combined. It leaves only TracFone, with nearly 12 million prepaid subscribers nationwide, as the major competitor for Sprint in the segment.

Prepaid phones, offering low-cost calling plans without contracts, have become increasingly popular as cash-strapped consumers look for ways to save money amid the economic downturn. Research firm Gartner forecasts about 9 million prepaid net subscriber additions in 2009, up from 5.1 million in 2008.

Boost Mobile earlier this year introduced a $50 monthly all-you-can-eat calling and data plan that brought in 764,000 net prepaid customers in the first quarter. TracFone, renting capacity on the Verizon Wireless network, earlier this month launched a rival unlimited service plan branded Straight Talk for $45 a month.

"Now that Sprint controls both prepaid brands (Boost and Virgin Mobile), it can control offers and meet any offer TracFone's Straight Talk throws out," said William Ho, research director for wireless services at technology research firm Current Analysis. Even so, analysts don't necessarily expect the Virgin acquisition to trigger a new wireless price war among the major carriers.

"What a lot of operators are doing is trying to deliver more value to subscribers in terms of what they can offer," said Tuong Nguyen, a principal analyst at Gartner covering the mobile industry. The major carriers generally offer unlimited calling and data plans, with some variations, for about $100. But the focus is still on higher-margin postpaid, or contract, customers to drive wireless revenue.

Buying a bigger share of the prepaid market won't be so easy, either. "There aren't many substantial prepaid brands out there for the major carriers to buy," said Ho. "Verizon Wireless' immersion in the space is through its relationship (a 6 month trial) with TracFone through the Straight Talk brand." But he suggested the Sprint/Virgin Mobile deal could potentially reopen merger talks between regional players MetroPCS and Leap.

MetroPCS in 2007 wound up withdrawing a proposed merger offer for Leap after saying the company had failed to engage the target company in meaningful negotiations. "This action may prompt better discussions between MetroPCS and Leap to get together earlier to meet this looming competitive threat," he said. Both companies have benefited in the last year from the upswing in prepaid subscribers.

Whether Sprint will merge its own two prepaid brands seems unlikely for now, say analysts. They say both Boost and Virgin have their own followings, with the former shedding its initial focus on the urban youth audience to reach a broader value-oriented market, and Virgin still targeting young customers.

Tracfone itself offers different brands including Straight Talk, Net10 and Safelink. "So there is precedence," said Ho.