Why Small Carriers Are Still Important
Small carriers like Leap Wireless are starting to suffer from the continued growth of larger providers, generating concerns about a future with less competition.
Subscriber Loss and Financial Struggles
The San Diego, Calif.-based company reported a subscriber loss close to 300,000 in the second quarter, far more than analysts expected and sending its stock price to an all-time low. The carrier now serves about 6 million customers nationwide.
Competition with Larger Carriers
Leap, which operates under the larger brand name of Cricket, is just one of several smaller, regional providers struggling to keep up with Verizon and AT&T.
The company is the sixth-largest cell phone carrier in the U.S. It suffered when the AT&T/T-Mobile merger fell apart, as it was to receive a large part of T-Mobile’s customers from AT&T as part of the deal. When the merger fell apart, so did the smaller carrier’s plans to become the country’s fourth-largest wireless provider.
Survival Strategies of Small Carriers
Carriers like Leap and MetroPCS were able to survive by being far and away the best available service in their respective locations, so their smaller size wasn’t a detriment. The companies served customers in rural areas that were not yet covered by larger carriers like Verizon, AT&T, T-Mobile and Sprint. But as the big wireless providers continue to grow and expand their reach, the more modest prices small carriers offer are no longer enough to keep customers from jumping ship.
Challenges Faced by Smaller Carriers
Now companies like Leap are forced to grow so they can play on a stage where they don’t have the resources or the customer base to compete. For example, larger carriers will always have the advantage when it comes to phone choice because manufacturers want their devices being offered on the biggest networks where the most customers are likely to buy them. It’s becoming increasingly difficult for small carriers to secure these big phones to sell on their own networks, but it’s almost impossible for them to survive without them.
Leap’s Gamble on the iPhone 4S
Leap took a gamble earlier this year and began selling the 16-gigabyte iPhone 4S to steal away customers from AT&T and Verizon. However, because the company is so much smaller than the wireless superpowers, it offers the 4S at the unsubsidized price of $500 and has its customers pay smaller monthly fees to recoup costs. Early numbers suggest the 4S may not be worth the trouble for the small carrier, but whether it offers the device or not, it’s still losing customers just the same.
Consequences of the Growth of Larger Carriers
While the growth of larger carriers may mean the U.S. is outgrowing the structural need for companies like Leap, U.S. Cellular and MetroPCS, the potential elimination of these carriers is bad for the wireless industry as a whole.
Impact on Competition and Pricing
Without low-level competitors willing to offer service at cheaper prices than Verizon and AT&T, the two wireless giants will be able to charge whatever they see fit for data, calling and text. As small carriers become less relevant, the effects are already being felt. Earlier this year AT&T and Verizon both moved to family plans, making customers share data and effectively ending unlimited service.
Potential Loss of Service in Rural Areas
In addition, sizable pockets of certain states in the Midwest could be without viable cell service. Verizon and AT&T have most of the country covered and would likely buy up whatever towers small carriers leave vacant, but there is no guarantee areas that really rely on companies like Leap will get the same level of service if it were no longer around.
Importance of Small Wireless Providers
Small wireless providers may not serve as many customers as they once were, but they still play a large role in the industry. They give checks and balances to make sure companies like Verizon and AT&T have to work hard competing for customers. If companies like Leap can’t find a way to stay relevant, the system risks turning into one where the rich only continue to get richer.
