Europe sets pace for prepaid: U.S. follows, but only as a last resort

Even though some U.S. carriers claim that prepaid customers account for nearly 50% of their customer base, most don't market the service at all, offering it only to the 25% to 40% of potential customers who fail credit checks.

Perhaps U.S. carriers could learn some lessons from their overseas counterparts.

European carriers have met with success in the prepaid market by actively targeting young consumers-typically students. The Netherlands' Libertel implemented a prepaid service in November, with the catchy name iZi (pronounced "easy"), that sold 30,000 cards in the first two months, primarily to a younger market.

Many European carriers' marketing materials feature similar subjects, such as young people on roller blades, said Richard Russell, president of U.K.-based Aethos, the company that provided the prepaid service platform for Libertel. "It's amazing how similar their ads are.

"In the U.S., prepaid is really not promoted as attractive," Russell said, with carriers often requiring large down payments and high per-minute charges. He believes it's a bit of a "not-invented-here" attitude that prevents U.S. carriers from pushing prepaid more.

Although PrimeCo Personal Communications estimates that almost 50% of its customers are prepaidusers, the company does not market it.

BellSouth Mobility DCS tested prepaid in two markets in November. Without marketing support, BellSouth exceeded its goals by 300% and rolled out the Prepay To Go package in the rest of its markets. Its prepaid customers, which make up approximately 10% of its customer base, either fail the credit check or want to closely manage their wireless costs.

Omnipoint presents an exception in the U.S., aggressively targeting large ethnic communities with print and broadcast advertising in New York. "Prepaid enabled us to go after a segment that wanted wireless legitimately but wasn't able to get it," said Jim Robertiello, general manager for Omnipoint. Members of these cash-based communities may not have long U.S. work histories or established credit.

As U.S. carriers migrate from analog to digital, they may turn to prepaid as a reinvestment opportunity for used analog phones, said Phillip Redman, senior analyst with The Yankee Group, who says he already sees this happening. Carriers can refurbish analog phones-phones that they originally subsidized-from customers switching to digital and then offer these phones to new prepaid customers.

European carriers have found they can cut costs and add users quickly with prepaid. In some European and most Eastern European countries, carriers cannot check credit, said Russell. Thus, prepaid ensures that customers pay for the service they use. Prepaid also decreases customer acquisition costs and eliminates the need to send bills.

Telecom Italia Mobile is credited with one of the first successful European prepaid launches in 1996. Within six months, the company added a half million prepaid users, said Rob Ollerenshaw, director of market analysis for U.K.-based CIT Research.

Prepaid also is successful in Mexico, said Bruce Edgerton, senior consultant for The Strategis Group. Nearly 60% of Telcel users are prepaid, he said. Offering prepaid allowed Telcel to capture a greater market share, which grew from 50% to 60% after it added prepaid services, Edgerton said.

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