PRE-PAID

The

pre-paid card has proved to be a boon not only for the price-sensitive

customers, but for the operators also.

The cellular

industry has led the telecom growth in India in the post liberalization

era. In a span of just three years, the Indian landscape has

witnessed a sea change with cellular rings rising to a crescendo.

Cellular telephony has created such hype that other telecom

services have been relegated to the background-virtually in

a state of oblivion. The cellular service providers, in close

conjunction with cellular phone companies, have invested millions

into market development. Their strategies have ranged from aggressive

price offers to high-pitch advertising and below-the-line promotions.



The pre-paid cards have largely propelled this growth. From
the early adopters, who belonged mainly to the high-profile

corporate and business world, mobile phones have now percolated

down to the entirely new segments-students, housewives, and

babus.

The pre-paid

market took off in Italy and Portugal. Within a short span of

time, pre-paid cellular has become the hottest selling commodity

and has virtually turned Europe into the world''s largest cellular

market. Europe today accounts for approximately 70 percent of

the world''s total pre-paid market. In Asia-Pacific, despite

the severe recession, the cellular market has shown a healthy

growth rate. And the pre-paid surge has proved to be the crisis-winner.

Of all the cellular subscribers added in India, Philippines,

Malaysia, and Indonesia in the last one year, 60-70 percent

have been in the pre-paid category. One major market, which

has been a laggard on this front, has been the US that has been

relatively slow in getting swayed by the pre-paid wave. But

then, the US market has always behaved differently from its

European counterpart.

The shift

is so strong that many contract/post-paid customers have also

joined the pre-paid bandwagon. The major demand drivers for

the pre-paid have been the anonymity of the subscribers and

the limited financial commitment it entails. In addition to

this, the access to this mode is extremely fast since it gives

an instant working mobile connection. The large grey and second-hand

market, coupled with the lower initial amount which the customer

needs to shell out, has resulted in the dramatic reduction in

the cost of acquisition of a cellular connection and has, therefore,

opened up a large segment of the price-sensitive customers.

Pre-paid

cards are becoming favourites with corporate customers and the

regular business travelers as well. Now they have an option

of picking up the pre-paid cards for different metros and circles

where they frequently roam instead of getting tied-down by fixed

roaming charges. It is also a very attractive proposition for

visitors and tourists because they can have a firm control on

their expenses. Another segment that has latched onto the cellular

phones riding on the pre-paid wave comprises people who are

into seasonal businesses like commission agents, small time

AC manufacturers, etc. With a large number of new and varied

customer-segments popping up continuously, the initial thought

that pre-paid would be a niche market, has undergone a major

transformation.Besides

being a boon for the subscribers, pre-paid has also emerged

as one of the most attractive propositions for the operators.

In times of shrinking margins, pre-paid cards have enabled the

service providers to tame the acquisition costs of the customers

because of the reduced marketing costs, low operational costs

in terms of maintaining huge databases, no follow-ups for rental

collection, and no tedious billing processes. Besides this,

pre-paid also ensures fixed revenue generation for the operators.

Most of them have either gone in for a fixed validity period,

where the pre-paid has to be consumed or re-charged within a

stipulated timeframe, or a daily charge is levied for using

the pre-paid card. Another reason for the pre-paid culture has

been the higher tariffs charged for the airtime by the companies

where the returns on retailing a spectrum of air waves are higher

compared to the post-paid subscriptions. Most of the service

providers have structured their tariff plans to make pre-paid

more cost-effective for lower usage while the post-paid offers

better value for money for higher usage. Carriers often charge

a premium on the pre-paid airtime because of the segmented nature

of the market.

Pre-paid

has also provided an opportunity to the operators to bring down

the level of the subsidies on the handsets and the airtime.

It has more relevance in Asia-Pacific because of underdeveloped

credit rating infrastructure and heightened fraud issues. Almost

the entire Asian market has been ridden with large sums of unrecovered

debts. Pre-paid has solved this problem to a great extent. Though

it may represent the lower end of the market in terms of absolute

revenue, pre-paid customers are in fact profitable.

Undoubtedly,

pre-paid has revolutionized the cellular market world-wide and

has been responsible for the phenomenal growth of this service.

But it has some inherent bottlenecks attached with it. The major

disadvantage of the pre-paid is that the subscribers are like

a floating stock and there is no database available with the

company of the users of the service. The only point of contact

is the mobile phone itself. The pre-paid customers always have

an option of switching over to the competitor who is offering

even a slightly better value for their money. Besides this,

pre-paid, as of now is devoid of value-added services and roaming.

Cellular

telephony has ushered in a phenomenon of the telecom branding

and a completely new paradigm of marketing the telecom services.

The cellular market has been clearly demarcated between the

contract/post-paid and the pre-paid categories with the post-paid

connections being positioned as the premium product category

of heavy users who also opt for a range of value added services

like Internet surfing, news updates and other on-line services.

The consumer profile of the pre-paid category is typically much

younger and largely comprises segments in the lower income groups,

where the major emphasis is on keeping the mobile communication

costs under control.Most of the cellular companies have adopted a two brand approach

with the main brand wooing the up-market customers and the pre-paid

brand trying to rope in the mass market. There are still some

companies who have decided to invest only in a single brand

with an objective of optimizing the cost of creating and building

a brand. The marketing strategies adopted by the companies for

managing two brands have also to be different. The post paid

subscriptions call for a more personalized interaction and a

focus on providing high quality of customer care and a wide

spectrum of services. On the flip side, the pre-paid has to

be marketed through an extensive and responsive distribution

network.

In this

highly competitive scenario, where the high rates of customer

churn are giving sleepless nights to the strategists, companies

have to make innumerable efforts of retain and grow the shrinking

base of loyal post-paid customers and stop the erosion of such

subscribers to the pre-paid stream. The service providers have

to devise brand loyalty programmes for the existing post-paid

subscribers to move them up the value-chain to ensure their

retention.

Pre-paid

has provided an opportunity for the service providers to rope

in a large number of customers through this route, identify

the heavy users and migrate them to the contract subscriptions.

In order to grow the market, cellular companies have to enter

into strategic alliances with each other to retail the pre-paid

cards through the other operators'' networks for the convenience

of the roaming customers.

With the

licence fee regime giving way to revenue sharing arrangement,

companies should be in a position to offer attractive packages

for both the post-paid and pre-paid subscribers. Market dynamics

will result in bringing down the airtime charges on the pre-paid.

More so, since both the marketing and operational costs are

lower for pre-paid, there is no reason for the pre-paid to be

more expensive than the post-paid cards. Besides this, consumers

pay up 100 percent in advance and this is the another factor

for the airtime charges to be more competitive for this category.



For the long-term sustained growth of business, cellular companies
have to strike a balance between the contract subscription and

the pre-paid customers. This will result in maintaining the

healthy subscriber ramp-up rate besides ensuring that the cash

boxes remain in tune with the ever increasing cellular rings.