Niches pioneered by upstarts and specialists that ultimately are taken over by industry giants are one of the recurring themes in the communications business. And it looks like pressure is growing in the prepaid mobile segment, where historic leaders are encountering new headwinds after having had the wind at their backs for the past couple of years.

 

Leap Wireless (News - Alert), historically a leader in the prepaid segment, in its most-recent quarter posted a wider quarterly loss as increased competition hurt subscriber growth, and said it would add fewer customers than it earlier expected in 2009.

 

Leap now expects to add 1.1 million to 1.3 million net subscribers in 2009, down from its earlier view of 1.5 million. Leap added about 116,000 customers in the third quarter, down both year-over-year as well as sequentially.

 

Average revenue per user also is likely to fall as the major wireless carriers step up individual marketing of prepaid offers.

 

MetroPCS Communications likewise has warned that Christmas shopping season promotions could hurt its won ARPU. MetroPCS in its most-recent quarter added only 66,000 customers, nearly half of what analysts had been expecting and down 73 percent from a year ago. The churn rate also grew to 5.8 percent from 4.8 percent a year ago.

 

It appears competition from the larger providers is responsible for the share losses. Sprint Nextel is acquiring prepaid operator Virgin Mobile USA while AT&T (News - Alert) has stepped up the pressure by lowering prices for its "GoPhone" prepaid offering.

 

Also, Wal-Mart has begun marketing the Tracfone service under its own "StraightTalk" brand. At the retail level, that is going to shift some current market share. At the wholesale level it is unclear what the impact will be, as Tracfone sources capacity from all four of the largest mobile networks.

 

Separately, prepaid customers now account for 20 percent of all T-Mobile (News - Alert) USA's customers. T-Mobile also is feeling the heat from an increasingly competitive overall U.S. cellular market, reporting a net loss of 77,000 subscribers during the third quarter. Sprint (News - Alert) also reported a loss of subscribers as both appeared to lose share to AT&T and Verizon Wireless.

 

MetroPCS also has cut its estimates for full-year subscriber growth by 450,000, to a range of 1 million to 1.2 million.

 

"Its recent disappearing act and lack of guidance do not instill confidence that it has any idea what is or will happen in U.S. wireless," Philip Cusick, an analyst at Macquirie Securities, said.

 

Leap Wireless for its part added 116,182 new customers, a decline of 25 percent year over year. The company also has cut its full-year estimate for new customers to 1.1 million to 1.3 million, from a prior forecast of 1.5 million.

 

The issue now is how much more room to cut costs and retail prices the prepaid providers can manage, and how willing some of the major providers are to stay competitive in the retail prepaid market.

 

Near term though, there is the effect of the expected Christmas shopping season promotions expected to be launched by the larger wireless providers.