The Prepaid Press - July 15, 2008 - (Page 28) RETAIL FOCUS July 15 · 2008 - 28 PREPAID IOI by Professor Retske Prepaid Wireless Services and long distance is often included in the price. And the percentage grows every year. Over 80% of the US population now has a cellular phone. Most of this is now contractual, which means the user has a contract to pay a fixed monthly fee for a period of time, typically two years. In exchange for this commitment, the mobile company pays for all, or part of, the cost of the handset. In some cases, in fact, in many cases, the handset ends up to be “free.” The user is given a basket of minutes that they can use each month. The cost of the monthly service will be based on the number of minutes in the basket. This service is referred to as “contractual” or “postpaid.” In the US, nearly all wireless service was postpaid from the outset. For the “credit challenged,” mobile service providers grudgingly offered a prepaid service. It was expensive, limited (no long distance was included) and the user had to pay for the handset, which was expensive. The facilities based mobile operators, like Verizon, Cingular, Nextel, Sprint, and so on, were more interested in selling monthly contracts instead of prepaid, for a number of mostly self-serving reasons. When the FCC opened the provision of wireless services to resellers, the new entrepreneurs saw the prepaid market as underserved, and an opportunity. These resellers, called “Mobile Virtual Network Operators,” or MVNOs, bought minutes in bulk from the carriers and sold them to end users. The cost per minute was higher than with a contractual service. Depending on the user’s calling patterns, prepaid can now be less expensive than postpaid. But, the biggest attraction for users is the fact that most prepaid services do not have a contract. Especially younger users like the fact that they can change services, or buy new handsets without worrying about a “termination liability,” a charge for disconnecting the service before the contract has expired. User acceptance of prepaid has grown dramatically over the past few years, despite the fact that many MVNOs are struggling. Every facilities based mobile service operator (MNO) now offers prepaid, or non-contractual service. Some, like AT&T with its GoPhone service, actively promote it. The last issue you need to be aware of is how prepaid service is paid. Obviously, it is paid before the service is provided, but there are alternatives for how this is accomplished. In fact, there is a hybrid service that looks a lot like contractual service, but without the commitment. This is often done by having a credit card or bank account that is used to pay the monthly service charge. The difference is that the user can discontinue service at any time without a penalty. Today, we are going to talk about prepaid wireless and how it is provided. As a cautionary note, prepaid wireless is far too complex for us to completely cover in just the time we have today, but I will give you enough information to understand the basics. It seems that everywhere you go now, someone is selling prepaid wireless. From retailers like Wal-Mart to pharmacies, to supermarkets and convenience stores, it seems everybody is selling it. Market estimates are that half the people getting phone service for the first time get a cellular phone instead of a landline. It makes a lot of sense, you get phone service that you can take with you There is also an on-demand option, where the user can specify when to recharge the account. Again, using a credit card or bank account, the user sets a dollar amount that will trigger a recharge, and how much should be added to the account. This can also be done manually by going to a website, or a POS terminal in a retail store and adding money to the account. Finally, there are cash only alternatives for recharging prepaid accounts. This normally involves visiting a retail location, and having the clerk post money to the prepaid account, or buying a card with a PIN. The PIN is then entered into the handset in some fashion to add money to the account. Prepaid wireless services are gaining in popularity, and in a slowing economy, many people may turn to prepaid out of convenience or necessity. See you next class! 20 http://www.iBasis.com/services/callcardservices.htm http://iBasis.com http://iBasis.com
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