NEW YORK-After a year-long collaborative trial with a cellular carrier in its hometown of Mankato, Minn., PrePaid Systems Inc. has begun marketing its handset-based prepaid system, which affords services and prices equivalent to those postpaid customers receive.
Hickory Tech, formerly Cellular One of Minnesota, began testing the patented software system in January 1999 with Uniden phones that retail for $100, including activation and 30 minutes of use, said Jerry Wilke, general manager of the carrier.
“As you know, carriers end up with a third to half of clients coming in on a prepaid basis. My goal is to be as ubiquitous and all-inclusive to prepaid customers as to postpaid customers,” Wilke said.
“People can probably argue we can do the same with switch-based as with handset-based prepaid, but handset-based offers more flexibility, faster deployment times and speed to market (and) better ease of use, both for the customer and for deployment by the carrier.”
Hickory Tech Wireless is seeing 60-100 minutes of use per month on the prepaid side and views prepaid as its own vertical customer segment, one that does not cannibalize postpaid subscribers, he said.
“To its credit, Hickory Tech decided to gamble on having the lowest required monthly prepaid usage, just $9 per month,” said Daniel Karvonen, chairman of PrePaid systems.
“We worked with Hickory Tech to launch prepaid in a way that is most fair to the users, not charging them more than [customers] who are postpaid…It’s a paradigm shift. [The carrier] gets the money upfront and doesn’t penalize the prepaid customers.”
The $9 minimum monthly prepaid usage charge is lower than many of the postpaid bundles-of-minutes plans available today, he noted.
“After 60 days, if [the customer] adds additional units, the system rolls up (adds in) the (older, outstanding) units,” Wilke said.
Hickory Tech is considering whether to drop minimum monthly prepaid usage requirements altogether. “Handset-based prepaid resolves the problem of recordkeeping for unused minutes,” Wilke said.
Because it is handset-based, rather than switch-based, the PSI system eliminates the charges that clearinghouses impose to handle and process roaming calls, said Neale H. Caflisch III, president of PrePaid Systems.
“It is … basically a postpaid phone with a clock in it that goes through all the data clearinghouses, unless some numbers like 900 numbers are restricted in certain areas,” he said.
Restrictions on numbers called are up to the carrier and the customer, as is the case when companies prevent their employees from dialing weather report and horoscope numbers on their wireline business phones.
“The initial thought behind prepaid was voice. We’re creating a way to deliver a variety of voice and data services, for example, Internet/Web phones. [Our] patent covers (many) wireless devices, including laptops and Palm Pilots. There will be software enhancements and upgrades,” said Peter Wendt, chairman of PrePaid Systems’ intellectual property division.
“This will work with any wireless protocol, including 3G … as long as the network has the capacity to do voice and data … The clock (inside the handset) works independently (of wireless protocol) and can decrement units [be they] bits or (airtime) minutes.”
Karvonen said he is excited about the possibilities for prepaid services for Web-enabled wireless devices.
“When it becomes a Web phone, this will be a lot of fun because it’s almost like an electronic wallet,” he said.
For Hickory Tech, the PSI system actually makes it easier for the carrier to provide and bill prepaid data services than doing so in a post-paid environment, Wilke said.
On the data side, the company only needs to set the decrementation at a different level-for Wireless Application Protocol or short message service, for example-because SMS is less expensive, he said.
“On the postpaid side, our Nortel switch doesn’t tell us how many SMSs were delivered to one phone. We have a separate counter, but the systems are not well integrated.”
Hickory Tech uses authentication and national fraud clearinghouses, which monitor usage in real time. Wilke said the carrier’s engineer did his best to defeat PrePaid Systems’ software, but the algorithms are structured so that once the 10-digit personal identification number is used once, it cannot be reused. Furthermore, from an end-user standpoint, subscription fraud is eliminated.
Besides licensing revenues from its patented technology, PrePaid Systems earns money by “staying attached to the carrier when airtime is replenished” and gaining transactional revenues, Caflisch said. In April, PSI colocated its prepaid management center hardware in Hickory Tech’s switch room.
Customers can recharge their phones at vending machines, by paying cash at walk-in retail locations and through credit/debit card magnetic-stripe swipe card systems. A Web site for prepaid recharge is nearing the end stages of beta testing.
“We just received a patent last November and are pursuing licensing agreements with carriers, resellers and (handset) manufacturers,” Karvonen said.
Omni Telecommunications Inc., also based in Mankato, had filed for this handset-based prepaid wireless software patent in January 1995. In November 1997, six months after PrePaid Systems’ incorporation, it purchased Omni’s interest in this patent application, which was granted in November 1999.
“We also have a patent-pending process on the settlement side, a proprietary way of making it more profitable for carriers to offer more services, (including) promoting international dial-tone availability,” Wendt said.
The settlement side can handle deliveries of different kinds of communications, like audio files and stock reports.
The system knows which company (Smith Barney, for example) is dispersing the information, Wendt added.
