For Boost Mobile, 50 Is the Magic Number

Post-paid subscriber calling plans have been a sore spot for Sprint Nextel. The nation’s No. 3 wireless service provider reported a 1.25 million drop in such consumers in its latest quarter. It sees big gains, however, in the pre-paid, no strings attached calling market, where U.S. sales soared 13 percent last year, per Pali Research. In February, the company’s Boost Mobile unit introduced an unlimited pre-paid calling plan that bills for $50 monthly. In its first two months alone and backed by an ad campaign dubbing charging hidden fees “wrong” and illustrating other wrongs (like a coroner eating a sandwich while doing an autopsy), the service recorded 764,000 new consumers. Boost Mobile CMO Neil Lindsay (pictured) spoke with Brandweek about why the plan has been successful and how the brand stays relevant. Some excerpts are below.

Brandweek: Sales of pre-paid, no contract calling plans have soared in a down economy. Is all this push behind what was formerly an unpopular segment of the market resulting in a permanent shift in the telecom industry?
Neil Lindsay: The shift is coming from the realization that pre-paid is now a viable choice, partly because the value equation has improved on pre-paid.  The reason it has appeal is because it’s a different business model to consumers. You can get a phone without feeling you have to make a commitment.

But there continues to be a difference because [if you] don’t have a contract, we have to charge more for the phone. There is a limit to the complexities of services we can support. Prepaid is your favorite healthy lunch café. It has what you need, but it’s not a full service restaurant. It won’t offer you all the bells and whistles.

[As for a long term shift], you will see some people moving back to contracted [when the economy gets better], but perhaps more people staying with pre-paid than we’re used to. Prepaid is becoming more mainstream. It will be significant in the sense that prepaid is moving from being this little piece of the pie to being important enough to every major carrier, and that has not been the case.

BW: Post-paid plans still yield higher profits, and yet, Sprint Nextel lost 1.25 million of these subscribers in its latest quarter. How would you describe the category’s health? What’s propelling it, what’s hurting it and what are you doing to overcome these tough times?
NL: We break it down into three areas: Demand—and wireless has become a social and business necessity, so [that’s an area that’s] healthy. Second is technology and capability, and there is a lot of technological development happening, so there’s plenty of value and opportunity. And third is business environment. Everyone is familiar with the state of the economy right now, but the industry continues to evolve in a positive way. Two out of three isn’t bad.

The industry is healthy. But what’s going to propel it is the constant need to communicate. What’s hurting it is the tendency to rely on complex and hidden fees. A lot of people complain that when they open their bill, or when they switch to pre-paid, they find it’s more than they expected. What we’re doing is focusing on the few things that matter by making sure that we’re really transparent and don’t charge fees that we don’t need to and to charge them when we need to.

BW: Boost Mobile’s new, $50 unlimited, pre-paid calling plan was an immediate success, more than the company could take. (764,000 new customers, a texting overload.) Do you see this as a short-term gain or something that’ll build long-term momentum for Sprint?

NL: The fifty-dollar plan has lots of legs. We don’t expect it to be a short-term spike. Competitors are clearly reacting and we have to get out every day and make sure we continue to push ours to make sure the [product] experience is still great.