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Growth of U.S. Pre-Paid Mobile Phone Service

Dow Jones reports that the pre-paid wireless customer, once scoffed at by wireless carriers, has now become a valuable source of business for the industry. Pre-paid customers offer lower revenue and margins, and are more likely to cancel their service. But with an expected slowdown in wireless growth, the carriers are more willing to open up to different avenues of growth.

"You'll see a slowdown in revenue growth over the next couple of years," said Todd Rethemeier, an analyst for Soleil Securities Group. "We're running out of good customers in this industry. Do you know anyone who doesn't have a cellphone?"

Take Sprint Nextel, it added 1.4 million net new customers in the fourth quarter. Of that total, 624,000 (45 percent) came from its pre-paid service Boost Mobile. The mix of pre-paid customers was surprisingly strong, and helped Sprint meet expectations.

This growth also comes at a time when voice revenue is declining. Once again, Sprint posted lower average revenue per user for its post-paid business in the fourth quarter, overshadowing solid growth in the data business.

The high hopes pegged to data revenue may be why the carriers have been aggressive in staking out as many customers - pre- or post-paid - as they can. While pre-paid customers typically generate less voice revenue, industry experts believe they are willing to embrace new technology such as music downloads and text messaging. The demographics of the pre-paid base - typically younger customers - are more aligned toward data applications.

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