Sprint: Prepaid Cell Service ProfitableSprint: Prepaid Cell Service Profitable

Sprint Nextel's success in the prepaid market is not cannibalizing its more lucrative postpaid subscriber base, according to CEO Dan Hesse.

Boost Mobile, which is a wholly owned subsidiary of Sprint, shook up the prepaid industry by offering a $50 unlimited plan that includes voice, text, push-to-talk services, and wireless Web access on the iDen network. The offering has been wildly successful, as Boost has added more than 1.5 million new subscribers since the plan was introduced in January.

But Sprint continues to bleed long-term subscribers, as it lost 991,000 contract customers last quarter while picking up 938,000 prepaid ones. In an interview with the Associated Press, Hesse said only a "low single-digit percent" of prepaid users came from the carrier's postpaid base, and he expects more contract customers once the economy rebounds.

Hesse said the prepaid users are "very profitable for us," and the company is placing a larger bet on the market with the nearly $500 million purchase of Virgin Mobile USA. Some industry watchers believe the prepaid market will go through a pricing war, as Boost competitors Leap Wireless, MetroPCS, and Page Plus Cellular have all recently dropped the price of their unlimited plans. Hesse said he does not think Boost will be dropping its prices anytime soon.

While interest in prepaid cellular service is up, the market is not as lucrative as the postpaid one because of the lower average revenue per user. Additionally, the margins are not as high, and users are more likely to cancel service because there's no long-term contract holding them back.

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