Skip to content “Reader Forum: Prepaid makes the world go wow”

February 10, 2011

This article identifies the prepaid trend, but doesn’t really nail the main reason for the trend.  The reasons it lists for the switch to prepaid include “regional preferences, low income in certain countries and the desire to enjoy cost control on specific services such as data and content,” but it leaves out the biggest one of all, which is the overall cost savings for both companies and consumers.

The article does a great job of comparing the drastic improvements in prepaid changes from just two years ago.

One tangent to note:  the fifth paragraph below refers to “a new research report conducted by Ovum on Amdocs’ behalf”:  that study woefully underestimates the number of people switching to prepaid.  I read through it twice to make sure I didn’t miss anything.  I was stunned at how far off their predictions were.  We can compare notes in a few years and see who was correct, but it’s already obvious to me they missed the boat, bigtime.  Also, the “hybrid” model touted in that report and lauded below is also DOA (dead on arrival), IMO (in my opinion), because of simple economics.  As margins are squeezed by competition and more knowledgeable consumers, companies will lose the financial ability to continue subsidizing their customers’ cell usage.  The easy credit days are quickly disappearing …

Red highlights are mine.

Reader Forum: Prepaid makes the world go wow
February 7 2011 – 6:00 am ET | Rafi Kretchmer, Director of Product Marketing, Amdocs; Guy Hilton, Product Marketing Director, Amdocs | RCR Wireless News

Editor’s Note: Welcome to our weekly Reader Forum section. In an attempt to broaden our interaction with our readers we have created this forum for those with something meaningful to say to the wireless industry. We want to keep this as open as possible, but maintain some editorial control so as to keep it free of commercials or attacks. Please send along submissions for this section to our editors

Fact: The majority of mobile subscribers worldwide are prepaid. According to analyst firm Ovum, prepaid today accounts for 75% of total mobile connections in 2010, and will grow to account for 77% by 2015. This is because of regional preferences, low income in certain countries and the desire to enjoy cost control on specific services such as data and content. In fact, analyst firms predict that the ratio of prepaid subscribers in the prepaid/postpaid mix will rise and even countries such as the United States will see an increasing percentage of prepaid activity over the coming years.

Ok. So we’ve established that prepaid is on the rise and that even postpaid strongholds are susceptible to its charms. But this still doesn’t explain why I’m writing this piece.

Because prepaid is changing

A bold statement you say? Just think of your typical prepaid subscriber of a couple of years ago and the same one today. A trip down memory lane would show you that a couple of years ago, prepaid subscribers were limited in the handsets they could acquire and the services they were offered, which were mainly voice and text. There was no way that a prepaid subscriber could use data services on a smart phone.

This is starting to change. These days you can find iPhones and BlackBerrys offered with prepaid plans that include data and content, application downloads, messaging and other services that not long ago were offered solely to postpaid subscribers. Service providers are offering more sophisticated and advanced services to answer the increasing expectations of prepaid customers as market offerings continue to diversify.

A new research report conducted by Ovum on Amdocs’ behalf found that 73% of service providers would like to expand prepaid offerings or have already begun doing so. The majority are also offering high-end devices such as smart phones to complement these new services.

It’s not just the diversification in prepaid services and devices that’s changing. Business models are changing, too. The best example is the emergence of the hybrid subscriber model. This model came about to answer both the demand of postpaid customers for better cost control, and also as a counter measure to prepaid customers’ high churn rates. In fact, 63% of service providers questioned in the above-mentioned survey said they were planning to offer this type of model.

Why? Here are two optional scenarios and their underlying logic.

The postpaid scenario: Postpaid subscribers looking for better cost control for certain services (e.g. data, content) can switch to a prepaid plan. But now, with the availability of the hybrid model, they can also choose to mix and match service and payment methods to best suit their needs. They can still have their voice plan on postpaid and sign up for data packages as prepaid add-ons to their account. This will provide them with postpaid benefits on one the one hand (better rates, subsidized handsets, etc.) and cost control on the other for selected services.

The prepaid scenario: With so many prepaid subscribers, the issue of loyalty and churn is a growing if not immediate concern for most service providers. One way to tackle this challenge is by launching differentiating services and offering highly coveted handsets on an exclusive basis. But these are short-term strategies. The hybrid model offers a longer-term one. It enables service providers to get subscribers accustomed to monthly allowances and a diversified set of services, helping to increase their stickiness.

How does it work? Here’s an example.

With a hybrid subscription, prepaid users will receive a predetermined allowance every month that will be added to their prepaid balance. This allowance can include any type of service or be limited to specific ones. Once this allowance is consumed during the month, the subscriber will top-up and recharge as a regular prepaid subscriber for the remainder of the month.

How do BSS/OSS systems come into play in this new world of prepaid?

We’ve already established that in the fast-paced changing world of prepaid, service providers need to move beyond current prepaid paradigms and offer advanced and sophisticated services coupled with new business and pricing models. Let me add another variable into this equation: time to market. Even if a service provider launches innovative new services, they still have to do it before their competitor does, or at least react quickly if a competitor beats them to the market. This is not an easy task with today’s prepaid systems, where launching an average service takes several months.

A charging system that can support both prepaid and postpaid scenarios and that can enable the creation of a single service or offer that serves both audiences is required to enable fast time to market to ensure that leading edge. It is also important that the system can scale to support the rapid growth in services and subscribers while maintaining, cost-efficiently, high performance levels. And last but not least, the system will require a look at convergence on multiple levels: Network, rating, invoicing, data model, and customer model to mention a few.

Final thoughts

There’s no doubt prepaid is changing. This can be seen in shifting service provider strategies and expanded offerings. It is also seen in the growing adoption of prepaid services by customers in countries where postpaid payment previously prevailed.

This wind of change will impact business models and charging systems, and will create a shift in the way consumers perceive prepaid services. Prepaid will become a legitimate payment method for any type of service. It’s going to be an exciting journey into a new world of options.

And in the meantime, don’t forget to top-up and recharge to keep on enjoying your new prepaid experience.

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