To bill or not to bill

Prepaid wireless has been an upwardly mobile market in the U.S. during the last year and is expected to continue growing. Although the prepaid option in the U.S. will capture a significant percentage of wireless customers in the next three years, the U.S. likely will lag behind Europe, where half of all wireless customers use prepaid service.

Though wireless carriers started to embrace prepaid, most market to niche consumer segments. SBC Wireless offered a localized prepaid service targeted to credit-challenged consumers, a marketing tactic often used by U.S. wireless carriers. Earlier this month, the carrier announced a new kind of prepaid service called Start Talking, which is directed to the youth and Hispanic markets.

"We wanted to make prepaid more attractive to [consumers] in these high-growth areas," said Steve Krom, vice president of marketing for SBC Wireless. "This was the first phase to try and re-orient our product to the youthful and Hispanic segments."

Though niche marketing could help advance the prepaid wireless market, its overall appeal may not apply to U.S. citizens used to being billed later.

"North America is supported by a strong credit system, which is the main reason why prepaid has not taken off," said Ray Naeini, executive vice president of global network business for InterVoice-Brite, which supplies prepaid wireless technology to carriers.

Though credit is built into the U.S. economy, that is not the case in Latin American and Asian countries, said Paul Waadevig, telecom analyst for Frost & Sullivan. Despite the cultural differences, the U.S. prepaid wireless service market could explode as penetration rates for post-paid reach a level of saturation, he said.

"I have seen an upsurge in prepaid promotion and interest in prepaid over the last three to four months," Waadevig said. "A lot of people have been saying, `Let's look at what's happening in the European market. Prepaid is not just for the credit-challenged.'"

In an independent study about the U.S. prepaid wireless service market, Waadevig found that while some wireless carriers offer prepaid services, they often are geared toward consumers with poor credit. The wireless operators, "are missing the idea," he said. Instead of targeting specific consumer segments or the credit-challenged, Waadevig suggests the general wireless subscriber might like to have billing options.

This view has yet to take hold in the U.S., as carriers focus on rolling out their wireless Internet initiatives.

For mainstream wireless users to consider a prepaid option, carriers must articulate why it is better than a post-paid billing solution. "Prepaid can work if carriers offer value that goes over post-paid," Waadevig said.

One stealth player in this market is AT&T Wireless, one of the first to announce a national prepaid wireless offering. Though the service, which doesn't include roaming or long-distance charges, has been available for almost a year, the carrier has been quiet about it. "It is a good plan to get sporadic users to sign up for service, but they do not advertise it enough," Waadevig said.

Even if AT&T Wireless advertised more, U.S. citizens accustomed to being billed later still might resist the prepaid option.

The service might be more successful if carriers step up their marketing efforts. Outside North America, prepaid is marketed as a lifestyle issue rather than an option for consumers who have trouble with their credit, Naeini said. "Prepaid has extensive advantages for carriers if marketed properly."

A year ago, marketing prepaid services was a major problem for carriers, but it is improving, Krom said.

"Now there are segments out there that see the value in it," he said. "There is a real market, so it is easier to develop promotions and marketing campaigns targeted to them."