The changing face of prepay: It's not just for the credit-challenged anymore

Although prepay services have been around for years, operators are just beginning to make their offerings more attractive in hopes of broadening the market.

Although technical challenges have made it difficult for operators to offer services such as roaming, one of the biggest impediments to prepay growth has been marketing, said Robert MacKenzie, vice president of PCS and product development for Canada's Rogers Cantel. "It was, in many cases, marketed as a plan of last resort," he said. When Rogers Cantel launched prepay last May, it took a proactive approach by aggressively marketing the service.

Bell Atlantic Mobile acknowledges that, like most U.S. operators, it offered prepay only to people who failed the credit check. "Since then, it has evolved. We are more proactive," said Laura Knoop, executive director of product development and marketing services for BAM.

BAM has allowed prepay customers to roam since it launched the service, but the offering was complicated. Customers had to redial their own number and the number they were trying to reach each time they wanted to place a call.

"When we launched prepaid, our opinion was that the complicated nature of roaming for prepaid wasn't going to be a big issue," Knoop said. BAM believed that prepay customers wouldn't roam much and that they wouldn't want extra features and services. Those services become more important as interest in prepay grows.

Boston Communication Group Inc., a provider of roaming software platforms, recently introduced an upgrade that allows automatic outbound calling by prepay roamers. "It allows carriers to target more of the frequent traveler, as well as corporate accounts," said Kevin Thigpen, vice president and general manger of the prepaid division.

In addition to service shortcomings of prepay, price has been a detriment to growth. "The way in which prepay airtime is priced at a premium over postpaid has hampered additional growth opportunities," Thigpen said. The most successful prepay operators today have lowered their prices, he said.

Lower prices could have other positive effects. "If prices go down enough, churn will go down," said Adam Zawel, analyst for The Yankee Group. Prepay customers have traditionally been the most apt to churn.

Rogers Cantel offers a $25 prepay card for one hour of talk time, which includes long-distance. Its 200,000 prepay customers account for about 25% of its sales.

The operator markets the service as a simple product for people who found PCS or cellular too complicated. "We see customers coming in on both ends of age demographics," MacKenzie said. Young adults with unsteady cash flows make up a large portion of Rogers Cantel's prepay base. In addition, the operator was surprised to find that prepay also attracts the retired-but-not-out crowd. "That was a real eye opener," he said.

Rogers Cantel understands its prepay customer base because it asks for names and addresses when customers sign up for service. The operator then surveys those customers in exchange for some free airtime. The information is valuable because Rogers Cantel can learn about the base and target them with direct mail.

Rogers Cantel also is unique because it allows prepay customers to stay active for a year after their last use, although the operator counts them as active customers for only the first six months. For example, snow plowers, who are seasonal workers, can use their phones during their winter working months and then not touch them again for several months.

PREPAY GROWS

- Prepay users will grow from 3.5% of all users in 1998 to 22% in 2003.

- Omnipoint Communications and PrimeCo say more than 50% of their new subscribers are prepay.

- AT&T Wireless and Pacific Bell Wireless don't offer broad-based prepay plans.

- Florida is a hotbed for prepay; in Miami, four competitors offer competitive prepay plans.

- Prepay plans for the price leaders are only a 20% premium to the postpaid plans.

Source: The Yankee Group