Wireless carriers and resellers that are beginning to capitalize on a customer segment previously denied service because of poor credit have a choice when it comes to providing prepaid wireless services.
The prepaid functions either can be housed at the switch or within the handset itself. Each solution has its own set of characteristics.
According to research conducted by the Yankee Group, between 25 percent and 30 percent of customers who try to acquire wireless service are asked to put down a deposit because of bad or questionable credit. Of those, 75 percent choose not to put down a deposit, said Dave Berndt, program manager in the wireless mobile communications practice at the Yankee Group.
Those figures translate into about 22 percent of potential customers walking away empty-handed, said Berndt, which could mean lost revenues for the carrier.
“Carriers are becoming aware of the potential of prepaid and they are investing in the technology,” said Wyant McAvoy of Comm/Sure, a company that offers both switch-based and handset-based solutions to dealers interested in prepaid service. “They don’t want to turn customers away.”
Personal communications services providers so far have been more aggressive at promoting prepaid services, noted Berndt, who estimated as many as 30 percent of PCS customers have signed up on a prepaid basis.
Although both handset-based and switch-based solutions have their own advantages and disadvantages, in the end “it comes down to the carrier’s preference because the end user doesn’t care as long as the phone works,” said Berndt.
From a business perspective, switch-based solutions require less managerial intervention and carry less liability because the switch provider, rather than the dealer, automatically turns off service to customers when their accounts drop to zero, said McAvoy. Dealers resell airtime from a prepaid switch provider and carry a small inventory. But dealers that carry switch-based prepaid services have no guaranteed revenue stream other than commissions earned from the original transaction.
Dealers that choose to offer handset-based solutions have more managerial control and obligations and more liability in that they must pay monthly for access lines. That control, however, translates into a continuing revenue stream because customers must replenish airtime either at the same dealer where the phone was purchased or at an authorized dealer. “Your customer is your customer as long as the phone works,” said McAvoy.
The initial capital investment in a switch-based prepaid platform can range from $25,000 into the millions of dollars for a single platform, said McAvoy. In general, that limits switch-based solutions to larger markets where the initial investment can be recouped with more customers. According to Berndt, though, some companies now are offering switch-based services on a service bureau basis, allowing carriers to offer the prepaid services without investing in a switch.
Another restriction on switch-based solutions is that roaming is only possible when the switch-based carrier has interfaced its platform with other platforms around the country. Handset-based solutions inherently support roaming.
The biggest limiting factor to handset-based solutions is that since software must be added to the phone, it isn’t available on existing phones or on all models, whereas switch-based solutions will work with any existing or new phone, said Berndt.
Switch-based solutions are taking a leading position in the prepaid market because companies providing the solutions have signed on more large carriers, Berndt commented. “That doesn’t necessarily mean it’s a better solution. It’s a matter of who gets out there first.”
