Can These Partnerships Help Prepaid Wireless Carriers?
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A Mexican tycoon's investment in a British company may seem like it wouldn't have a large impact on American consumers. But when the app is as popular as Shazam and the investor is the head honcho of the largest prepaid wireless carrier, America takes note.
Why América Móvil?
With this investment, Carlos Slim's América Móvil (NYSE: AMX) has infused $40 million into the popular app Shazam, which allows users to use a smartphone to find out the title and artist of a song currently playing. América Móvil is Latin America's largest telecom company, but in America it is known by subsidiaries TracFone, NET10 Wireless, Straight Talk, SIMPLE Mobile, and Tel America. In other words, if you own a prepaid wireless phone, chances are América Móvil is behind it.
It's a smart move for América Móvil, since the company reported a 17% profit loss in its most recent quarter. The company attributed the decline to expenses related to creating phones with internet capabilities in order to compete. Consumers are demanding text and data capabilities on prepaid wireless phones, just as they'd have from competing smartphones on traditional wireless plans. Since América Móvil's deal includes a strategic business collaboration, it's likely Shazam will be a large part of América Móvil's attempt to attract prepaid wireless owners from competitors Cricket and T-Mobile.
iPhone Goes Prepaid
In recent years, Shazam has become closely linked with Apple devices, only gaining notice after the iTunes Store was created in 2006. While Shazam is also available for Android, it is a staple of many iPhone owners' app collections, leading to natural speculation that América Móvil is planning a strategic move. Like Cricket and T-Mobile, América Móvil's Straight Talk recently launched a prepaid version of the iPhone, sold through popular retailer Wal-Mart. To continue to compete with the overcrowded prepaid market, América Móvil needs to set itself apart.
Leap Wireless International (NASDAQ: LEAP), owner of Cricket Wireless, is aggressively marketing its iPhone plan, dropping the monthly price to $50, which includes unlimited data. Since Straight Talk is currently offering the same plan for $45 in Wal-Mart stores, Cricket has only its reputation. Additionally, the fact that Leap Wireless competitor T-Mobile (NYSE: TMUS) recently merged with MetroPCS leaves many analysts noting that Leap Wireless is conspicuously absent from the partnerships its competitors are forming. A partnership could be just what Leap Wireless needs to remain competitive.
The numbers confirm Cricket Wireless is indeed on the decline. Leap Wireless posted first-quarter revenue 4.3% below the same quarter in 2012. The wireless company's current average rating is "Hold," with analysts predicting $-5.19 EPS for the current fiscal year.
T-Mobile and MetroPCS
The merger with MetroPCS has T-Mobile positioned to take on the big dogs. Currently, the wireless provider is behind Verizon Wireless, AT&T, and Sprint Nextel Corp to be the fourth biggest wireless provider in America. After the merger was announced, T-Mobile was said to have 40 million customers for its prepaid cell phone services, which include the iPhone.
With T-Mobile, customers pay $50 a month, but unlimited data costs an additional $20 per month. América Móvil and Leap Wireless could potentially lure some of these customers away, but both companies appear to focus their marketing campaigns on tackling the big two (AT&T and Verizon), rather than the 40 million customers T-Mobile now enjoys.
Prior to its merger, T-Mobile reported 500,000 iPhones had been sold in the company's first month of offering them. Still, the company's revenue has been on a decline in recent years and in its past quarter, T-Mobile experienced a 7% reduction in revenues. The company was optimistic about its future, adding that it ended the quarter with an increase of 579,000 customers. This was the first addition of branded customers for the company since 2009.
Three Prepaid Providers
With Shazam available in the app store, customers of Straight Talk, T-Mobile, and Cricket Wireless already have access to the app. But the partnership with Straight Talk could see a more hefty incorporation into the phone's operating system, along with such attractive offers as a discounted or free upgrade to Shazam Encore, which removes ads and includes unlimited tagging.
As iPhone owners consider switching to a prepaid carrier to save money, prepaid wireless companies will continue to try to stand out. A partnership with Shazam can give América Móvil an extra boost, but in the end, price and service will be what wins customers over.
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