STOCKHOLM, Sweden-Uncertainty related to the future of Scandinavian mobile prepaid calling plans, less preferred here than in Western Europe generally, is largely due to the struggle to migrate customers to more expensive products and emerging technologies that could fundamentally change the relationship between vendor and customer, said regional wireless operators and market analysts.
A February report from the Yankee Group, a U.S.-based technology consultant with international headquarters in the United Kingdom, estimates that in Western Europe by the end of 2001, 66 percent of all mobile customers will be prepaid clients, a figure forecast to increase to 68 percent by 2005. In Italy, about 90 percent of all mobile users were prepaid customers at the end of 2000, the report said.
The percentage of prepaid customers in Scandinavia is generally lower than in the rest of Europe. Finland provides a stark example. Low postpaid tariffs, significantly costlier prepaid tariffs and a less-than-enthusiastic push for new prepaid customers have resulted in prepaid customers accounting for less than 5 percent of total customers, the Yankee Group reported. A primary characteristic of the prepaid segment is that it is youth oriented, analysts said.
Yankee Group and Stockholm-based investment company Fischer Partners Fondkommission data for 2000 concluded that about half of Norway’s mobile customers use prepaid services, while Swedish prepaid customers accounted for about 43 percent of mobile customers.
A necessary evil?
Many operators said they are eager to sign up new prepaid customers. Yet when compared with postpaid or contract subscribers, prepaid customers tend to generate less average revenue per user (ARPU) and possess higher rates of churn, or defections to other operators, Copenhagen, Denmark-based IDC Nordic analyst Lars Vestergaard said.
Operators cannot afford to turn away prepaid customers, however, because eventually they could turn into big-spending contract clients, Vestergaard said. Neglecting the prepaid market is also hazardous, because Scandinavian mobile penetration already is among the highest in the world. Operators ignoring the prepaid segment face real difficulties capturing new customers, Yankee Group senior analyst Farid Yunus said.
“There are no real new subscribers out there,” he said.
Prepaid customers can be a “necessary evil,” Vestergaard said. The operators have tried various tactics to compel prepaid clients to shift to postpaid plans, like withholding services from prepaid customers, such as international roaming. Prepaid airtime is typically more expensive than contract-based tariffs. Whether these and other tactics have helped shift users to postpaid plans is a matter of dispute. Indeed, data show that postpaid customers have in many cases migrated to prepaid plans, the analysts said.
Technology drive
As General Packet Radio Service (GPRS) services begin rolling out across Scandinavia, convincing prepaid users to make the technological leap to the new network while making it possible for them to buy content and engage in mobile commerce with their handsets presents new challenges for Nordic operators.
Swedish operator Europolitan, one of the first Nordic operators to roll out GPRS service in December 2000, currently sells two GPRS products-but only to postpaid clients. Europolitan spokesman Johan Holmgren said he did not know if the service would be offered to prepaid subscribers.
“We don’t know yet. … We are looking at it,” he said.
Other operators made similar statements. Prepaid customers of Telia, which owns subsidiary mobile operators in the four largest Nordic countries, “should be able to use” the advanced networks operated across the region in the future, but a final decision is pending, company spokeswoman Charlotte Zuger said.
“We will have to wait and see,” she said.
Danish wireless operator TDC Mobile International Senior Vice President Jesper Theill Eriksen said TDC wants to make data and Internet services available to prepaid clients, in part to increase ARPU, and is studying business models to realize that goal. One option is to set up prepaid customers with separate billing accounts, he said. Yunus said third-party vendors, such as a prepaid customer’s bank, may get involved.
When GPRS is functioning throughout the region, “some prepaid subscribers will probably start moving to postpaid subscriptions-that would be my expectation,” Eriksen said. Also, the line separating prepaid and postpaid will “begin to blur,” he said. Postpaid customers may choose low-end fixed-service products, while a prepaid customer could buy many value-added services using an approved billing or payment facility, he added.
“There’s no doubt we are working on and will introduce billing mechanisms to allow us to sell data and mobile Internet services to prepaid customers,” Eriksen said.
There is doubt, however, on exactly when prepaid customers will have access to TDC’s GPRS network. Eriksen said prepaid customers will “eventually” have GPRS access, “but not in the first instance.”
Yunus argues that operators cannot ignore such a large segment of their existing customer base when the companies consider future operations. Operators should not treat prepaid customers as “second-class users,” but as customers who simply use an alternative method of paying their mobile bills, Yunus said. To deny these customers mobile-commerce opportunities and other next-generation applications, which in turn would increase revenue, would be foolish, he said.
Handset manufacturers are expected to produce GPRS terminals in mass quantities later this year. Developing a new base of GPRS customers, in turn, could help move subscribers toward true third-generation (3G) telephony, which should start operating for larger-scale European audiences in late 2002 or early 2003.
If tomorrow’s prepaid customers can obtain from mobile operators workable payment systems, understandable tariffs and compelling technologies, “we don’t see why they can’t be part of the third generation of mobile telephony,” Yunus said.
“Prepaid is here to stay.”
