Prepaid wireless began in the United States as an alternative service offering for the credit challenged. Recognizing that up to 30% of all applicants could not meet their stringent credit requirements, mobile operators began aggressive campaigns to deploy prepay services in the 1996 time frame.
Prepaid Wireless Market
Prepaid wireless services means that users have to pay for the phone services prior to using them, unlike post-paid which denotes that users have to fulfill payment for their service usage charges or settle usage bills every certain period (often monthly) according to an agreement with the mobile operator or the service provider. As postpaid mobile service subscribers, prepaid wireless service users have access to almost if not all mobile services, yet the charge rates may be different.
While the target market for prepaid wireless users was largely the credit-challenged and the unbanked (population refers to the section of population that doesn’t have any relationship with normal banking services), prepaid a whole no longer has a stigma. In fact, the battle for prepaid wireless dominance rages in the USA with competition between providers very fierce.
Carriers look to leverage both highly targeted marketing programs as well as technology to safeguard their customer based. Prepaid wireless offering strategies look to leverage loyalty programs, account vs. debit based systems, segment strategies, and various technology approaches. Challenges include roaming rates, churn and replenishment, services and differentiation.
Over the last 7 years, traditional postpaid plans have been dominating the wireless market for the voice and data services. However the US wireless market witnessed significant changes especially after prepaid wireless services emerged that included smartphone as well as similar features to post-paid plans.
Prepaid Wireless Technology
All prepaid wireless applications have the same things in common in terms of functionality:
- A database used to determine if a customer is a valid user and how much credit (typically measured in currency value, but may also be in airtime, number of bytes for prepay mobile data, and/or number of messages for SMS) they have on their account
- A rating engine used to determine the rating of a call based on a combination of various factors such as incoming or outgoing call, destination number, destination location, calling party location, time of day, day of week, customer’s prepay plan, promotions, whether the call/session is voice or data oriented, and other factors
- A mechanism for decrementing the customer’s prepay account based on the rating of the call
- An event alerting mechanism for signaling to the mobile network that a predetermined account threshold has been reached (note: this is problematic in CDR based systems – thus the problems with fraud/uncollectable revenue). This would allow the user to be alerted during a call (to avoid an unexpected disconnection) and to alert the customer regarding the need to recharge prior to making a call (so as to avoid the first situation).
Prepaid Wireless Business Operations
The establishment and support of effective sales channels and points of distribution is very important to success in the prepay business. This relates to both initial sales for new prepay customers as well as ongoing customer support including support for customer account replenishment.
The foundation of a successful prepaid wireless program is built with the establishment of many and varied merchant locations. Distribution concerns include both the mobile equipment (phones and accessories) as well as prepay cards. A successful prepaid wireless distribution system includes an expansive and effective network of both equipment sales channels as well as points-of-sale for card purchase and/or prepay account replenishment.
With a “virtual storefront” on the Internet, fulfillment must be addressed as a separate issue. Arrangements must be made with mobile equipment suppliers and/or distributors to ensure that equipment and/or prepaid wireless cards can be distributed to customers as they make purchases. With utilization of the Internet for commerce increasing rapidly, the need to secure an independent means of fulfillment will increase.
Merchant point-of-sale locations require support in terms of advertising, communications terminals (for activation and replenishment), equipment returns, and technical assistance. One of the most important items is the point-of-sale activation and replenishment device.
Depending on the type of prepaid wireless system these devices will consist of either a simple electronic keyboard or modem (in the case of a debit card based system), or also include a magnetic strip reader (if the system is account based). These devices, ranging in price from a few hundred dollars up to one thousand dollars, must be judiciously located in merchant locations where it is expected that users will replenish often.
While wireless prepaid service providers continuously strive to automate their operations to the extent possible, it is likely that there will always be a need for customer care personnel. Many operators employ automated equipment such as an interactive voice response unit (IVRU) to handle many routine announcements and customer interactions.
In some cases IVRUs are used for the acceptance of payment for replenishment, or at least account replenishment based on user input of information from a previously purchased prepay card or voucher.
All prepaid wireless systems require a certain level of administration including provisioning customer data, handling replenishment requests or system maintenance. Some prepaid wireless platforms may only be accessed via proprietary interfaces for administration.
Other systems employ open interfaces that allow legacy wireless operator customer care systems to interface with prepay databases. Regardless of the system deployed, improved administrative efficiency should be the goal as this is an area where the wireless operator can reduce operating costs through effective automation.
Prepaid Wireless Marketing and Sales Strategies
The cost of acquiring a prepaid wireless customer is generally much lower than acquiring a postpaid customer. Historically, a large portion of the acquisition cost for post-pay has been sales, dealer, and agent commissions.
On the other hand, prepay is typically distributed in a more cost effective manner. Sales assistance is minimal or non-existent as there is little or no customer information required including no credit check. Prepaid wireless phones and cards can be found in low overhead retail locations such as department and convenience stores.
One strategy that is emerging is the selling of additional services on a prepaid basis while decrementing the account on either a flat-fee, duration or per use basis. This may be very future looking as mobile users are not very accustomed to per-use, transactional services. Consumers will, however, begin to embrace these types of services more in-line with the trend towards increased reliance of prepaid debit cards and cashless society takes hold.
Future of Prepaid Wireless
A little known and often misunderstood market opportunity is emerging that will not only transform the prepaid wireless industry, but also profoundly impact several other industries including financial services, wireless services in general, online merchandising, and many providers of goods and services.
This market opportunity is based on the evolution of prepayment from its current use, which is primarily telecommunications bearer services, to an environment in which prepayment for virtually any type of good or service will be made possible by way of emerging technical solutions and a high degree of collaboration between all parties in the value chain.
This transformation will be made possible through implementation and support of stored value. Stored Value” represents a major paradigm evolution in the pay-in-advance services industry. No longer may services be measured only by usage. Now, services may be measured by value.
More Info about Prepaid Wireless in the United States
The Mind Commerce report, Prepaid Wireless in the United States: Market Outlook and Forecast 2018 – 2023, evaluates the prepaid wireless market in the United States including major provider analysis and service assessment, technologies involved in prepaid service delivery, and assessment of the future of prepaid communications, content, and commerce.
The report also provides forecasts for 2018 through 2023. The report also analyzes major MVNO companies and offerings. The report also provides a view into the future of prepaid wireless and market forecasts through 2023 including subscribers and Revenue by Voice vs. Data vs. VAS and by Connectivity Type.
This research also provides critical information necessary to negotiate with MNOs for MVNO operations as well as SLA management
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