Abstract
Economic conditions will drive prepaid uptake
Despite the national network operators focusing on postpaid, total prepaid
connections have continued to grow significantly. While prepaid still remains
relatively small in terms of total market percentage - 20% at the end of 2008 -
the volume of connections is significant. At just over 52 million it is bigger than the
prepaid market in the UK, which accounts for approximately 65% of total UK
mobile connections. Figure 4 demonstrates the growth of prepaid connections in
the US since 2004, showing prepaid as a percentage of total mobile connections.
- Prepaid Plus provides unlimited on-net mobile calls in the evenings and weekends for $2 per day, chargeable on the days of use only, and $0.05 per minute for all other voice calls and messages.
What these launches showed the market is that Verizon recognises the need to
keep its eye on the prepaid sector. Whether these plans will be sufficient to attract
retain customers remains to be seen. We don't see Verizon's move as a
significant threat to the current prepaid offerings in the market, and it's likely that
Verizon will revisit its prepaid offerings again in the foreseeable future.
MVNOs have targeted the prepaid space with varying success
The successful MVNOs such as Virgin and TracFone saw a gap in the market and
have dominated the pay-as-you-go space since. We estimate that together Virgin,
TracFone and the other MVNOs such as WallMart and Movida make up around 40%
the total US prepaid market, with network players such as Sprint (via its Boost
brand), T-Mobile, Leap, Metro, AT&T and Verizon totalling the rest. When
considering just the pay-as-you-go segment, MVNOs equal more than 50% of connections.
The lean MVNO business model lends itself well to lower-ARPU prepaid customers.
fact that MVNOs have a much lower cost base and less infrastructure means in
theory they should able to be profitable on a lower-ARPU customer.
In reality even the MVNOs have struggled, with many going out of business. Highprofile
players such as Disney, ESPN and Amp'd failed as they competed in the
postpaid market against the network operators. The high operational costs
associated with being a ‘thick' MVNO and owning their own infrastructure meant
that they couldn't attract sufficient customer volumes quickly enough to stay
operational. They were also fielding higher-priced premium offers (service plans
devices) that customers did not accept on any scale.
The leaner prepaid players have made more of a success of their businesses. In
particular we have seen success for those players targeting the Hispanic
community which, up until the launch of Movida and Tracfone, didn't have any
tailored solutions on offer. TracFone is the largest MVNO in the market with around
million customers at the end of 2008. However, even these ethnic players are
immune, as shown by the financial difficulties faced by players such as Movida
Azteca Mobile during 2008.
Operators need flexible payment mechanisms to attract and retain customers
Most operators in most markets around the world offer pay-as-you-go realtime
billing for prepaid customers, usually on a pay-per-minute basis. Many of the US
players also offer variations on this:
- pay-per-minute (traditional prepaid charging)
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