Apple mania leaves prepaid carriers locked out

MetroPCS Communications Inc. and Leap Wireless International Inc., the two biggest prepaid mobile-phone carriers in the U.S., are watching the iPhone's booming sales from the sidelines.

Apple Inc.'s device -- the bestselling smartphone at AT&T Inc., Verizon Wireless and Sprint Nextel Corp. -- isn't available from MetroPCS and Leap, which typically offer lower-end models to users who don't want monthly contracts.

Getting locked out of the iPhone market may be taking a toll on prepaid carriers -- an area that's been one of fastest-growing parts of the mobile-phone industry, fueled by young people and lower-income consumers wanting a phone without having to go through a credit check and other hassles. MetroPCS added 82 percent fewer subscribers in the first quarter than a year earlier, while Leap drew 22 percent fewer.

"We are seeing the impact of the iPhone," said Avi Greengart, a research director at Current Analysis in Washington.

The first-quarter results of MetroPCS and Leap, both released in the past 24 hours, sent the stocks tumbling Thursday in U.S. trading. Leap dropped 20 percent to $6.14, the biggest decline since August. MetroPCS decreased 11 percent at $7.08.

MetroPCS, based in Richardson, Texas, netted about 132,000 new customers last quarter, missing a Piper Jaffray Cos. estimate of 350,000. San Diego's Leap added 258,000.

In addition to the decelerating growth, the prepaid carriers have had to step up promotional pricing and rebates, crimping profit more than analysts had anticipated. In contrast, the three carriers -- Verizon, AT&T and Sprint -- all topped analysts' estimates, helped by iPhone sales.

Apple's profit almost doubled to $11.6 billion last quarter, while revenue jumped 59 percent to $39.2 billion. The company sold 35.1 million iPhones in the period.

Prepaid carriers also face more direct competition from traditional mobile-phone services. When it started, the MetroPCS $50 month-by-month unlimited service plan was an attractive alternative for consumers who didn't want to be locked into more expensive two-year contracts. Now those users can get similar plans from the top three carriers.

The broader shift to smartphones also hasn't helped, said Mark Winther, an analyst at research firm IDC in New York. The networks of the prepaid carriers aren't as well suited to the data downloading required by those devices, and that may be pushing customers away, he said.