Launching Prepaid

Five years ago, GTE Wireless became the first wireless company in the United States to offer a prepaid type service. It was called "Pay Go." Although Pay Go was primitive compared to GTE's current offering, customers loved the idea that they could "pay and go" so much that it quickly became one of the company's most popular offerings.

When GTE Wireless launched its current prepaid offering in April 1996, the service skyrocketed with a growth rate greater than 260% in its first full year of business. Prepaid service added more than $11 million to GTE Wireless' 1997 revenue stream. Between 1996 and 1997, the carrier experienced tenfold customer growth, from 6,000 to more than 80,000 prepaid customers. With opportunities for increased growth, GTE tapped previously untapped market segments, adding revenue with little to no fraud or bad debt risk. In addition, the cost to bring on a prepaid customer was 60% less than the cost of adding a traditional customer.

GTE is not alone. Many other wireless carriers are shooting for the stars as well.

"Every wireless company we know intends to expand their prepaid offering," said Tina Altamura, prepaid product manager for GTE Wireless. "They see a lot of opportunity across the board. In fact, prepaid is one of the few segments remaining in the wireless industry where you are still seeing phenomenal growth."

CUSTOMER EXPERIENCE Initially, the success of prepaid sprung from the fact that carriers were turning away more than 35% of wireless applicants because of poor or non-existent credit. Many potential subscribers never even applied for service because they knew their credit records would disqualify them. In addition, carriers must add new subscribers to make up for the lower average revenue per subscriber. Prepaid services are helping carriers attract those customers to the wireless category. And because they pay in advance, the risk factor is negligible.

"This service is important. We are meeting a real need here. Like landline phones, wireless phones aren't just for the affluent," Altamura said. "Just like anyone else, a credit-challenged person needs wireless service for personal safety or business -- and now, they are able to afford wireless communications when they can closely control what they spend."

GTE's typical prepaid users are married (60%) males averaging 28 years of age. Typically, they are students (15%) or self-employed (25%) with individual earnings between $35,000 and $45,000 per year.

Credit is not always the reason they sign up for prepaid services; often controlling expenses is the key driver. For example, a parent buying airtime for a child wants to maintain control over how much money is spent. Businesses also can maintain expense control over employee use of wireless phones.

There are five main profile groups that typically need prepaid service:

* Credit-challenged people

* Budget-conscious consumers and small businesses

* Seniors on fixed incomes who tend to be cost conscious

* Young professionals

* Third-party payers, such as parents of students and children of senior citizens.

GTE customers pay an average per-minute rate usually between 75 cents and $1 depending on their market (75 cents per minute in most markets). And most GTE markets now offer 50% off weekend and off-peak calls.

Prepaid customers buy airtime in increments of $75, $50 and $35. According to Altamura, they can make and receive calls just as traditional wireless phone users do. At the setup of every call, customers hear a private message that tells them how many minutes are still available in their accounts. For example, an automated voice says, "You have 32 minutes left in your account." When the account is running low, customers hear a private audible warning at two minutes, one minute and 30 seconds before the call is disconnected. This series of warnings, audible only to the subscribers, gives them the opportunity to gracefully terminate their conversations.

Prepaid customers also have access to 24-hour customer care (*611) and a 24-hour interactive voice response (IVR) system (via #PPD) that allows them to get information about their accounts, to load their accounts with more airtime value and to check when their minutes expire.

"We've learned that above all, our customers like simplicity," Altamura said. "They like to know what they pay per minute. They like to know what their balance is, and they enjoy the peace of mind knowing that we will alert them before they get disconnected."

HOW IT WORKS The backbone of these features lies in the network, which allows a smooth process that customers don't notice. First, a block of dedicated phone numbers is assigned to prepaid service in every GTE market. When the wireless switch in that market sees this number dial in or out, (make or take a call), it immediately routes the call to a processor called a Summa IV. The Summa IV then processes the prepaid call -- the Summa IV contains special software that talks via a wide area network to a mainframe database. The Summa IV says, "I've identified this prepaid user, and they want to make/take this call. How much money do they have left in their account?" The database then looks up the information, and answers back, "They've got 30 minutes available for this particular call." Then, that information goes into the IVR at the Summa IV, and the IVR privately plays that message back to the subscriber. This process occurs every time a prepaid user makes or takes a call, so users always know their account balances.

A variety of system components makes up GTE Wireless' prepaid network, including the system's architecture, hardware, software, databases and integration. With such a system, running into challenges is inevitable.

"We've built an extremely intelligent network. It has multiple redundancies and uses the very latest in Internet communication devices," Altamura said. "But, maintaining and upgrading such a network can be burdensome, especially with so many entities involved. Of course, network stability is key to the entire enterprise. But because it is so complex, there are many different points it can break down."

A solid trouble-reporting and escalation process is critical to identify and resolve customer-impacting events quickly. Support and active involvement across operations, network, customer service and marketing are key.

MARKETING EDUCATION In addition to learning about and enhancing its prepaid network, GTE also had an educating year in the marketing arena.

"We've learned so much about marketing prepaid services this year," Altamura said.

Among the product-management team's many victories was a particularly successful on-going direct mail campaign aimed at those who had applied for wireless service and didn't pass the credit check. Not only had this target segment already expressed a clear interest in wireless service, but the mailer itself took a positive approach to the prospective customer.

This approach paid off with a 5% to 10% increase in sales, she added.

Just in time for the holidays, the company also introduced GTE Prepaid To Go, a retail "off-the-shelf" prepaid offer. Because the service required no deposit, no monthly bills, no credit check and no annual contract, everybody qualified for service. GTE's $149 package included a Motorola TeleTac 250 portable phone, battery and charger, easy activation, and a $50 prepaid airtime card. The service was an ideal way to give wireless service without being responsible for unlimited monthly bills. And because it came in a self-contained box, customers could wrap it up and put it under the tree just like any other gift.

As with any new service offering, GTE also found some areas it needed to improve on. One of the biggest challenges GTE faced was recognizing the need to change its entire sales approach to prepaid service. Initially, prospective customers would come into a store and want the advertised free phone, 20 cents per minute and free weekend deal. Then, the retail representative would have to inform them that they didn't pass the credit check. If they wanted service they had to buy the phone for $100 and pay in advance for the airtime. In addition, it cost as much as 75 cents per minute, and weekends weren't free. This was no longer an attractive offer to customers.

"We are working to change our entire approach, so it isn't a default product," Altamura said.

With a new point-of-sale approach, GTE intends to reach new customer segments, outside of the credit-challenged. Imagine the difference it makes when a retail representative opens with, "Hi! Tell me about your wireless needs. Do you need expense control? Do you want to avoid a contract? If so, I've got the deal for you."

"It is so important that prepaid customers don't feel pushed off to the side," Altamura said. "We cannot continue positioning it as a fall-back product because it isn't."

Retail is GTE's biggest distribution channel, and the company intends to grow and support it in order to make it easy and convenient for customers to purchase the service. In fact, GTE Phone Marts (in markets where GTE wireless and wireline service overlap) now carry the wireless prepaid service offering.

"We know our customers need convenient payment and refill stations," Altamura said. "Partners and company-owned channels are very important. We need to look at new opportunities -- we may try a Sam's Club or maybe a convenience-type store this year."

Currently, GTE offers credit-card refills over the phone.

"We started with a $75 card but now offer $50 and $35 denominations to lower the barrier to entry," she said.

According to Altamura, GTE has learned a lot about distribution this year.

"We always thought we'd build the Cadillac and that it would satisfy the needs of every distribution channel," she said. "Now, we are realizing not all solutions are going to meet all channel needs. One size does not fit all. We may need to offer a variety of different offers based on channel need."

GTE also is finding that prepaid customers want the same features that traditional wireless services offer.

"Our customers want roaming, voice mail, caller ID, call waiting and other typical wireless services, and we intend to give it to them," Altamura said.

Although GTE won't give specific marketing plans for 1998, the product team said it will target the Hispanic and student markets in a variety of ways.

BRIGHT FUTURE 1997's growth rates and other statistics prove that prepaid offers a promising future of increased revenue and subscriber numbers. A March 1997 survey revealed more resp ondents (51%) preferred prepaid wireless over traditional service (45%) because there are no bills, they have better control over their spending, and there is no annual service contract. GTE also learned that prepaid wireless is attracting new customers by eliminating barriers to the risk averse.

Research confirmed the product team's decision to re-position its service. There were strong indications that the benefits of no annual contract, no credit check and no monthly bill could drive traffic direct to the prepaid service offering. Although research confirmed the need for sales processes to capture customers who default to prepaid based on poor credit as a backup, those processes should not be the primary sales opportunity for the service.

Thirty percent of customers who expressed intent to purchase additional refills (cards that contribute airtime value to their account) said they will buy one $75 card per month, indicating a strong profit potential for the service. Another 40% said they would buy refills every two months.

With the promise of future growth, GTE is keeping a close eye on the domestic and international development of this increasingly important growth engine. Some GTE representatives think that prepaid service is still just "rumbling on the launch pad" waiting to take off. They may be right. Telecom research companies project that within seven or eight years, 40% of the total wireless market in the United States will consist of prepaid service -- and many agree this figure could be much higher in Europe.

There is considerable worldwide potential for prepaid wireless services. Outside North America, people typically do not deal in credit. Cash transactions are the norm. One company that recently responded to an African wireless bid found that expectations for prepaid services would be about 90% of the wireless use in that area. When people from cash-based economies come to live or work in the United States, many of them continue dealing in cash.

Wireless service isn't just for the affluent or for people who don't have to count their pennies. It's also for people who want to control what they spend and for people who prefer to deal in cash. As GTE Wireless experienced first hand, prepaid launches are set to skyrocket revenue and subscriber growth for many wireless carriers.

While carriers are seeking the true benefits of prepaid services, vendors are enhancing and introducing prepaid solutions. Here are just of few of the many prepaid products vendors are talking about at Wireless '98:

*Systems/Link offers carriers the Home & Away Prepaid Billing solution, which provides a real-time administrative system, a bilingual (English/Spanish) interface to the voice-response unit and software that rates all home and away calls. Because the Home & Away system is integrated with Systems/Link's RoamEx network, carriers can allow Home &Away subscribers to use service in their home and roaming markets.

For information, visit the web site at www.syslink.com, or call 609-409-0909.

*Subscriber Computing is showcasing WIN-based PrePay metered billing. The company's new generation PrePay system offers a centralized prepaid billing platform that links to the wireless network through SS7/C7 links (no E1/T1 voice trunks).

For information, visit the web site at www.subscriber.com, or call 714-260-1500.

*JRC Canada is highlighting its Pay 'N' Talk prepaid cellular products and services. JRC offers two prepaid platforms, switch-based and intelligent phones. These prepaid solutions are available in a variety of program options ranging from product only to full turnkey program.

For information, visit the web site at www.jrcc.com, or call 817-847-2100.

*CPDI's Call Control call-processing platform was specifically designed to be a high-volume, network-based platform that supports prepaid/postpaid wireless, long distance, dial tone and calling cards. CPDI is adding features continually to its flexible Call Control platform, keeping its customers in the forefront of both the prepaid and postpaid industry.

For information, visit the web site at www.cdpi.com, or call 360-694-2977.

*Topp Telecom recently announced an alliance with CellStar, which will provide distribution and facilitation services for Topp Telecom. The company also has introduced features for its prepaid TracFone. Topp Telecom eliminated the monthly access fee and announced a nationwide 1-rate plan where customers purchase blocks of airtime. The company also completed its national footprint; customers now can get a local cellular number wherever they move at no extra cost and without additional fees.

For information, visit the web site at www.topptelecom.com, or call 305-640-2000.