Prepaid Mobile-Phone Lines Tangle Calculation of Market Penetration
By CONNIE LING
Staff Reporter of THE WALL STREET JOURNAL
What is Taiwan's mobile-phone penetration rate?
It seems a simple question but, depending on whom you ask, the number can careen wildly. Analysts' estimates range anywhere from 70% to 85%. Government statistics put it at a staggering 92%, up from about 7% less than five years ago.
The truth, though, may lie with users such as Tsai Jui-lung.
Mr. Tsai is a late adopter of mobile technology. He bought his first cellular phone less than two years ago and still mainly uses his landline. But in the two years this otherwise unassuming 26-year-old Taiwanese graduate student has owned a mobile phone, he has gone through five mobile numbers, often owning several at the same time. By the count of Taipei-based Far EasTone Telecommunications Ltd., his service provider, Mr. Tsai accounts for at least four active users.
The numbers grow inflated because Mr. Tsai, like millions of other Taiwanese and Asian mobile users, is a devotee of prepaid mobile services rather than monthly subscription plans. The advantage for him is that with prepaid plans, he can pay as he goes without worrying about monthly fees and easily switch numbers and service providers. But because Mr. Tsai technically has four prepaid plans at his disposal, mobile operators count him four times instead of once.
Europe Faces Similar Problem
Nor are the arithmetical headaches attendant to prepaid services confined to Asia. Europe, where prepaid mobile services were introduced first, faces a similar though smaller problem in attempting to convert prepaid users into regular subscribers.
Prepaid users now account for about half the user base in Europe, but analysts expect the prepaid numbers to go down with the arrival of data-intensive next-generation high-speed wireless networks in the next two to three years. "Two of the biggest areas of revenues predicted for the 3G world are mobile commerce and mobile location," says Simon Buckingham, chief executive officer of Mobile Streams Ltd., a United Kingdom-based wireless market-research firm. Both these services will require either user authentication or customization, something that prepaid plans won't be able to accommodate since prepaid customers are largely anonymous, he explains.
Even before the advent of 3G reduced the popularity of prepaid services, though, mobile operators in Asia faced a far more urgent financial quandary: Because the mobile penetration rates in countries where prepaid services are rampant tend to become inflated, the illusion of a saturated market is fostered. That, in turn, potentially thwarts future growth and dampens foreign investor interest.
Take Singapore. The city-state saw its mobile penetration rise impressively over the past five years, growing from under 10% to nearly 80%. Then it plummeted for the first time last October, with a further drop in November, pulling the penetration down to just under 70%. The dramatic user number drop -- from 3.1 million in September 2001 to 2.8 million two months later -- is largely due to the adjustments made by wireless operators in the prepaid subscriber numbers. "SingTel has taken on a more aggressive approach in removing inactive [prepaid] customers," says Ivan Tan, a spokesman for Singapore Telecommunications Ltd., explaining SingTel's decision to switch off 35,000 prepaid users in September. "Many of these customers are transit customers that will never come back," he adds.
Why would telecom operators deliberately pull the plug on customers? Sandra Ng, vice president of communications and peripherals research with International Data Corp., explains SingTel and its rival MobileOne Asia Pte Ltd.'s decision to prune its customer base as a way to put the numbers on its books in proper perspective. "From the industry players' perspective, the penetration rate has been artificially pushed up," she says. "If they don't adjust it now, they can never grow."
Prepaid Success More Bane Than Boom
Most telecom operators in Asia -- with the exception of those in China -- aren't attractive to foreign investors any more because of the market saturation and competition, adds Henry Lee, managing director of fund-management firm Hendale Group. The aborted deal last October by Australia's Telstra Corp. and Hong Kong's Pacific Century CyberWorks Ltd. to acquire Singapore's second largest mobile operator, Mobile One, is a case in point. It foundered, analysts say, partly because Telstra and PCCW believed MobileOne's customer base and the Singapore market's growth potential didn't justify the price being asked by MobileOne's shareholders.
It wasn't supposed to turn out this way. When most Asian wireless providers rolled out prepaid services a few years ago the wireless market in Asia was just taking off and service providers' overriding goal was to get their subscriber numbers up. Prepaid became an easy tool to achieve subscriber growth in a short period of time, especially in Southeast Asia, which was just recovering from the 1997 financial crisis. "Economics is one of the major reasons why prepaid took off in Southeast Asia," says Connie Hsu, regional telecom analyst with research firm Pyramid Research LLC. "People really wanted to limit the amount of spending."
In countries such as Indonesia and the Philippines, prepaid customers account for more than 70% of the total mobile users, with the Philippines reaching more than 90%. China is quickly catching up as more first-time mobile users try out services with prepaid. Even in Singapore and Taiwan, two of the more developed mobile markets in Asia, the percentage of prepaid customers of all mobile subscribers is still over 20%.
But the success of prepaid services in underdeveloped Asian economies is now proving more a bane than boon. Companies such as Globe Telecom Inc. in the Philippines, for instance, have benefited greatly from the prepaid boom with a surge in user growth in the past three years. However, analysts warn the attempt to stretch the user base of such operators too far through prepaid services could eventually damage their bottom lines. And the hope of pushing prepaid customers into higher-cost regular subscription plans simply hasn't materialized.
Write to Connie Ling at connie.ling@wsj.com1
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Updated January 24, 2002 12:01 a.m. EST
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