Pre-Paid Growth: ARPU Is the Next Need

VoicenData Bureau
New Update

Is pre-paid subscriber growth sustainable for cellular operators? Yes, say

industry watchers. But there is a tag line with a couple of ‘ifs’ thrown in.

These ‘ifs’ are: provided the pre-paid growth is complemented by value

growth, provided operators are successful in converting pre-paid customers to

post-paid customers and provided operators are able to give more value to

pre-paid customers and thereby increase their airtime usage. 



bottom-line is that pre-paid as a growth strategy cannot be ignored by any

cellular operator, particularly in a country like India where penetration rates

are so poor and the market is so price-sensitive. Even for a player like Hutch,

which by all means could be categorized as a value player–a relatively smaller

subscriber base with high ARPU–pre-paid is a critical strategy. Says Asim

Ghosh, CEO and chairman, Hutchison Max Telecom, "No player can ignore the

pre-paid strategy in a country like India. We may appear to have a value-based

approach because we have a lower profile. But this is only the foundation. We

also need the volumes through pre-paid growth."

"Indian cellular market is clearly over the phase of education. This is

the time for customer consolidation where pre-paid led growth would be a key

strategy," says Rothin Bhattacharya, head, telecom practices, KPMG, India.

That be so, operators have lapped up pre-paid growth. In recent months,

according to COAI figures, as much as 80 percent of the new subscriber base has

been acquired through pre-paid. Says Anil Nayyar, head, mobility, Bharti

Cellular, "It is the call of the market. We are only providing what

customers want from us."

“No player can ignore the pre-paid strategy in a country like India. We also need the volumes through pre-paid growth.” 

CEO and chairman Hutchison Max Telecom

And it is this call of the market that has led Escotel to launch pre-paid

cards in denominations as small as Rs 100. "So that people can buy airtime

as it suits their pockets. Remember the shampoo sachet ad where there are

different packet sizes for different hair length? We are pitching airtime

alongside FMCG as a lifestyle product," says Manoj Kohli, CEO, Escotel

Mobile Communications.

But how long will the party last? Operators are not too bothered with such

musings. With pathetic penetration rates–of one phone for 26 persons; a total

tele-density of around 50 percent, 40 percent basic telephony penetration and 7

percent cellular penetration–operators feel there is a long way to go before

pre-paid led growth plateaus off.


Not everyone is waiting though. Bharti, which has an aggressive pre-paid

strategy, recently announced incentives for pre-paid customers who buy cards for

higher value denomination. It has set up a network of 600 franchisees across the

country to drive its pre-paid growth. The company has invested considerably in

building its pre-paid brand ‘Magic’. The strategy has shown results with the

operator notching up the highest number of new subscribers.

“We have entered a phase of customer consolidation where pre-paid led growth is going to be a key strategy.”
Rothin Bhattacharya,


(telecom practices), KPMG India

Most operators have a dominant base of pre-paid customers. Yet, this segment

brings in average revenue of only one-third to operators. Operators weigh the

value of three pre-paid subscribers against one post-paid subscriber. While the

ARPU from a pre-paid is Rs 500, the post-paid ARPU stands at Rs 1,000. It is in

this light that Bharti’s offer to boost airtime usage by pre-paid customers

needs to be appreciated. Indian cellcos now need to package airtime and

value-adds in more innovative packaging.


According to a study by Booz Allen Hamilton, the current stagnation in the US

cellular growth hovering at around 50 percent could be offset by a pre-paid led

growth strategy provided certain key strategies are adhered to. This includes:

keeping a tight control of acquisition cost; increasing the pre-paid ARPU;

strategies targeted at retaining subscribers; introducing innovative pricing

plan and being able to transform the pre-paid customer to a post-paid customer.

At the same time, the study also warns about the need for careful

implementation of the pre-paid strategy "to minimize the inevitable

trade-off between increasing subscriber volume and revenue leakage."

“Pre-paid led growth has to be seen as the call 

of the market. 

We are only providing what customers want from us.”

head (mobility)

Bharti Cellular

Pre-paid as a strategy has many benefits. It gives the operator up-front

money and reduces the scope of bad debt. Bad debt accounts for 5-10 percent of

operators’ losses. Pre-paid customers typically have limited budget and are

spurred by the need to maintain voice communication. The call-hold time of such

customers is typically low with an average talk-time of 60-100 mins per month (KPMG).

With only voice usage and less of frill services, such customers exit the

network very quickly and therefore do not burden the network.

But this very reason can also prove to be the strategy’s bane. Margins are

already very low in voice communication. At $16 per month for 300 minutes, India’s

wireless voice services are the lowest in the world. However, data services like

SMS have huge margins and need to be promoted amongst customers aggressively.

The Booz Allen Hamilton study has shown that European operators benefited

substantially by introducing more data-based services and value-adds like call

forwarding, call holding, entertainment, etc. The myth that the pre-paid

customer is reluctant to pay for value-adds stands shattered.

“We are pitching airtime alongside FMCG as a lifestyle product so that people can buy airtime as it suits their pockets.”


Escotel Mobile Communications

Another negative fallout of a pre-paid led growth is the high churn rates

amongst this segment of customers. Traditionally, the pre-paid model

limits the number of customer touch points primarily to minimize

customer-handling costs. This is aggravated by the fact that customer anonymity

is high in the segment due to absence of billing statements. These reasons limit

the operator’s ability to tailor promotions to customer needs and deliver


Nonetheless, it is important to keep acquisition costs of the pre-paid

customer to the minimum. Operators can effectively reduce this cost by promoting

remote top-ups. The Booz Allen Hamilton study found that the European operators

have extensively re-engineered ATMs and other vending machines to enable

purchase of refill minutes via a direct transfer from a bank account. Remote

top-up has also proved to be very successful in the Philippines also, a market

which is almost entirely pre-paid. Decreasing acquisition costs allows operators

to recoup costs within one month as against the current three months.


At the same time, incentives to the resellers could be based on customer

growth and the ability to convert these customers into post-paid in future. KPMG

suggests that an Indian customer who uses more than 200 minutes of airtime

should move to a post-paid scheme.





For sustained growth to occur from pre-paid, it is important that operators

do not view the segment as a short term, transient opportunity. The key is to

view them as an asset base of potential high ARPU post-paid subscribers.

Balaka Baruah Aggarwal