LATimes. 'Prepaid' Idea Is Catching On in U.S. Market. Carriers and users welcome the debit plans, but the packages don't yet compare with those offered in Europe
latimes.com
Monday, March 15, 1999
SPECIAL REPORT: WIRELESS COMMUNICATIONS
By ELIZABETH DOUGLASS, Times Staff Writer
repaid phone service, already popular
among long-distance callers, has become
one of the fastest-growing services among U.S.
mobile phone users.
Using the model of long-distance debit cards,
the wireless service allows customers to buy a
phone and pay in advance for a set amount of
usage, or minutes. This allows users and businesses
to avoid the hassles of credit checks or service
contracts.
"The nice thing about prepaid is that there are
no strings attached at all, and that's been a huge
attraction for people," said Mark Newman, editor
of the Global Mobile trade newsletter based in
London. "It used to be that if you gave someone a
mobile phone as a gift, you've given them the
privilege of having 12 monthly bills."
Wireless carriers in the U.S., eager to land new
customers as competition heats up, have embraced
the concept.
With the prepaid option, carriers can afford to
adopt a more egalitarian approach to selling service. The companies
can, in effect, welcome the "huddled masses" of wireless: infrequent
users, youth and immigrants without established credit records, the
budget-conscious or people with poor credit histories.
Carriers typically offer service only through monthly plans, a process
that often involves a credit rating review. As a result, nearly half of all
potential wireless customers in urban markets are rejected, according to
Ken Hyers, a wireless industry analyst at Cahners In-Stat Group of
Newton, Mass.
That approach was fine when carriers were focused on heavy mobile
users and business customers. But that market has become fairly
well-served--and highly competitive--so companies can no longer afford
to throw away potential customers so quickly.
For now, most U.S. carriers seem to view prepaid as a niche
market. But it is much more than that in Europe, where wireless use far
outpaces that of the U.S.
Throughout Europe, three out of four new mobile users last year
picked a prepaid plan in the fourth quarter, said Newman, who is also
an analyst for Baskerville Communications Corp.
"In Europe, it has become the most compelling way to sell to
consumers, and it's taken everyone by surprise," Newman said. "They're
scooping up customers who have fancied a mobile phone but were
worried about the cost, and people who used to be mobile phone users
and got fed up with it."
* * *
European carriers collected nearly $7 billion in prepaid wireless
revenues last year, compared with an estimated $990 million in the
United States, according to figures from Baskerville. However, the U.S.
figure is expected to nearly quadruple--to $3.7 billion--by the end of
2000, according to Baskerville.
Still, U.S. acceptance of prepaid services faces hurdles. One is
pricing. Most U.S. carriers sell prepaid services at per-minute rates that
are much higher than those available through monthly plans. The price
gap for European carriers, by contrast, is much smaller, with per-minute
prices averaging 30 cents.
"For the consumer, who is seeing everybody getting these deals for
10 cents a minute, they're sitting there saying, 'Wait a minute, I'm paying
35 cents, 45 cents, 75 cents or even $1 per minute,' " Hyers said.
That price penalty is evident in plans offered by Los Angeles-area
carriers, including AirTouch Cellular and AT&T Wireless (formerly L.A.
Cellular). Sprint PCS and Pacific Bell Wireless do not sell prepaid
packages in this area.
* * *
AirTouch, for example, sells prepaid wireless cards that include
prices ranging from 50 cents to 75 cents per minute for local calls. Rates
for prepaid packages sold by AT&T Wireless are 55 cents per minute.
In addition, restrictions may be placed on prepaid services.
Depending on the carrier and the plan, prepaid customers may find they
can't make long-distance calls or place calls from outside their home
service territory.
And prepaid cards often have an expiration date. Unused
minutes--although already paid for--could be forfeited unless the user
adds more money to the account before the expiration date. Some
companies impose a fee to reinstate a lapsed account.
Finally, the selection of phones may be limited and the service
provided could be analog instead of the digital service that includes such
features as voice mail or call waiting.
Copyright 1999 Los Angeles Times. All Rights Reserved
|
