Let’s be up front about it

Prepaid has come of age. It is no longer a payment option offered by carriers to users they fear will default on their bills, have limited disposable income or who may plan to use a mobile phone only under the most unusual of circumstances.

New research from Ovum, produced in association with billing specialist Amdocs, suggests that operators are coming to accept prepaid as simply a payment model—with postpaid no longer held up as the only truly desirable billing relationship.

As report author Sara Kaufman wrote: “Operators have come to realise that it is much easier to bring the service to the customer, than to bring the customer to the service. Operators clinging to a migration strategy for their prepaid customer base need to re-examine their objectives.”

Prepaid used to be synonymous with low level handsets, limited services and high costs for airtime or messages. Historically it was simply assumed that prepaid users would have no need for more advanced services. Evidence of a shift away from this is clear in many markets. Blackberry handsets, iPhones and Android smartphones are all available with prepaid tariffs, while the distance between prepaid and postpaid charges has narrowed significantly. There is a tendency now towards bundled prepaid tariff plans that give comparable volume of minutes and messages to postpaid offerings.

The downturn that has marked the global economy in recent years no doubt has a part to play. Rafi Kretchmer, director of product marketing, revenue management at Amdocs, gives an example. “In the US in the last two years there has been a major shift from postpaid to prepaid, caused by the economic downturn. People moved to prepaid because they wanted better control over their costs. But analysts are now saying that 60 per cent of those that shifted will probably remain as prepaid customers.”

Ovum interviewed 19 carriers from around the globe as part of this research, looking to gauge how operator perceptions of prepaid have evolved. The results were illuminating. Some 73 per cent of respondents said that they were keen to—or had already begun—offering a wider range of services to prepaid users, including advanced messaging, application downloads and mobile broadband. Just less than half of those interviewed said that their organisations already offer high end handsets and mobile broadband access devices on prepaid tariffs.

“Some prepaid customers will never move to postpaid. We’re considering extending some exclusive services to prepaid customers in the next one to two years,” said one European operator interviewed by Ovum.

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The survey also revealed that operators are moving towards hybrid models that are designed to give customers greater control over their costs, while keeping an element of the revenue assuredness that postpaid gives. Ovum found that 63 per cent of respondents, primarily in Europe and North America, were already offering such models

Under these scenarios users may pay for basic voice and text on a monthly, postpaid basis, but buy richer services like MMS and data access on a prepaid basis. “The [prepaid] focus is on how the revenue can be enhanced by offering a subscription-based product,” said one Asia-Pacific operator that participated in the survey.

There is a sense in which this is simply a diluted version of a postpaid migration strategy, however, and it seems clear that, whatever the payment method a user selects, operators have to offer a comparable degree of customer service. With prepaid users this becomes all the more important as it is much easier for them to churn.

One North American carrier told Ovum: “In prepaid, the biggest risk of losing customers is when they run out of funds on their account…Inactivity costs a lot in terms of churn and unbilled days that no revenue is generated.“ Operators need to maintain “constant contact” with their prepaid users, said Kretchmer, suggesting that letting users know when their credit is close to expiring and offering incentives for immediate top ups is one of a number of proactive methods of keeping customers on the network.

The big problem for operators looking to make these adjustments—and the reason for Amdocs’ involvement in the project—is, of course, the requirements such strategies place on billing, rating and charging systems. Kretchmer says that operators can have as many as ten different prepaid charging systems, and the same number installed to bill their postpaid customers. Amdocs and its competitors are trying to convince operators they need to move to more elegant, convergent billing systems that will make it easier to integrate offerings.

Ovum found that migration and integration were “major problem points” for the majority of interviewed operators looking to adjust their prepaid strategies within the confines of their current billing system architectures. Speed to market also ranked high as a serious limitation. All of which should be good news for Amdocs.
But Ovum discovered that not all operators were convinced of the need to upgrade. “Operators vary on their opinion on whether to move to a convergent charging system to help achieve the objectives of their prepaid strategies,” Kaufman wrote. “Significant circumstantial factors such as running multiple networks, operating in multiple countries or managing legacy services or customers are all reasons operators cited for holding back plans to convergent biling.”

And then there’s cost. That same downturn that has sent users onto prepaid tariffs has made it difficult for operators to invest. They certainly won’t be paying upfront for new billing systems.