The rapid growth of prepaid wireless services in Western Europe will not continue unchecked, according to a report published by Strategy Analytics.
The availability and adoption of prepaid wireless services in Western Europe has increased dramatically during 1998, with an expected 15 million customers opting for prepaid service during the year compared with 12 million customers selecting postpaid options. Prepaid cellular tariffs in Western Europe offer low-use customers average savings of 40 percent compared with postpaid subscription alternatives, according to Strategy Analytics.
However, by 2003, postpaid services will regain momentum, accounting for about 60 percent of market growth, according to the report, “Prepaid Cellular in Europe: Key Trends and Forecasts.” The cellular market will increase from 23.3 million prepaid subscribers at the end of this year to 67.6 million prepaid subscribers by 2003. Postpaid customers will grow from 58.8 million at the end of this year to 104.1 million by 2003, accounting for 60 percent of growth, said the report.
“Increasing cellular penetration rates and levels of competition will see operators extend their strategies beyond maximizing subscriber numbers to maximizing their share of total telecom traffic and revenues,” said Phil Kendall, senior industry analyst at Strategy Analytics. “We expect prepaid to remain an ideal solution for low- and medium-use customers, but we believe that postpaid subscriptions will be the main vehicle used by the networks to promote high, and consistently high, levels of cellular usage.”
Kendall said plans designed to encourage landline substitution and cellular phone use in the home and office overwhelmingly have been based on postpaid subscriptions.
“Much of the beauty of prepaid is in its inherent simplicity,” said Kendall. “Expanding prepaid service propositions to offer viable alternatives to postpaid at any level of use would necessarily dilute prepaid’s simple (and strong) marketing message.”
The success of prepaid in Western Europe has been spurred by factors including cost savings to the lower-use market segment and increased control over expenses and service duration, said Kendall. One of the few disadvantages of prepaid-having to recharge prepaid accounts-is being nullified by the growing number of places customers can recharge their accounts, including grocery stores and gas stations, said Kendall.
In its analysis of 15 Western European countries, Strategy Analytics found that at low levels of usage-25 minutes of outgoing calls per month-prepaid packages are between 25 percent and 50 percent cheaper than postpaid packages. The average monthly cost, based on 25 minutes of calls, on prepaid packages across the 15 networks was $13, compared with $22 on postpaid plans.
Even at higher levels of usage-75 minutes of calls per month-some networks in Europe still offer prepaid savings of up to 20 percent, said the report.
Italy, Portugal and Spain are the largest prepaid markets in Western Europe, accounting for 33 percent of all cellular users and 69 percent of prepaid users in the region. Portugal’s subscriber base was nearly 67 percent prepaid at the end of June with 1.3 million prepaid customers, and Italy’s subscriber base was nearly 57 percent prepaid with 8.8 million prepaid customers.
Less than 10 percent of subscribers are prepaid in the United Kingdom, France, Germany, Denmark and Finland. Denmark and Finland have had prepaid schemes available for less than a year.
Western Europe has been more aggressive in prepaid compared with other regions. Strategy Analytics estimates prepaid accounted for 2 percent of users in the United States by mid-1998, compared with almost 25 percent prepaid in Western Europe. Other countries with a strong prepaid presence include South Africa, Australia and India, said Kendall.
“In Europe, prepaid has definitely caught the imagination of potential cellular users,” said Kendall. “In markets where prepaid call charges are punitively high, postpaid tariffs often involve substantial monthly rental charges, so prepaid is a cheaper option to postpaid at low levels of use throughout the region.”
