On Wednesday, October 31, 2001, at 02:15 , Daniel Helmer wrote:
>> Benjamin wrote:
>> And I am curious as to whether you can back up what appears to be a
>> generalisation that prepaid mobile is unprofitable.
>
> OK, perhaps I was generalising a bit. I don't mean to suggest all
> prepaid customer are unprofitable, but the ARPU tend to be considerable
> lower, and therefore less attractive to the carriers. And the
> unprofitable customers are more likely to be in prepaid rather than
> postpaid.
Fair enough.
> Obviously, a mobile operators product mix should cover the whole
> spectrum of customers, but in the name of ARPU, need to find a good
> balance between lower and higher spending customers. To go after the
> remaining population currently without mobile phones to increase
> penetration rates from 60%-80%, as Graham suggested in his initial
> posting, inevitable involves mainly low-spending (and arguably prepaid)
> customers.
That is correct. However, low ARPU doesn't mean low profit. The problem
is not with prepaid and low ARPU. The problem is with many operators
applying postpaid business models to prepaid.
Prepaid is definitely a consumer service -> read: commodity -> compare
to: supermarket vs boutique.
How are supermarkets being profitable with low ARPU ? Well, they tend
(or at least ought) to have ...
1) a tailored portfolio (don't carry items that are not of interest to
majority of population)
2) economies of scale (buy large quantities and sell volume at low
prices)
3) efficient operations (cut out middlemen and reduce cost)
this is what should be applied to prepaid and operators who follow this
do very well on their prepaid.
As far as prepaid is concerned, this means, things like handset
subsidies must eventually go and low-cost less-feature handsets for low
spending customers need to replace subsidised expensive ones.
It also means that credit retail will need to be streamlined eventually.
In some countries commission paid to retailers for selling prepaid
vouchers are excessive (or at least have been - IIRC Denmark was once
leading the outrage list with well over 30% commission - don't know if
that is still the case though).
In the Middle East and Africe where prepaid is often the norm retail
commission is often below or at 5%, which supports a sustainable low
ARPU business very well.
In the industrialised world the trend is to offer alternatives to
printed vouchers. For example, Australia has been rather modern in this
field with the electronic recharge service, where you can recharge your
prepaid account from a cashing machine, which reduces cost for the
operators. What is special and very commendable with the Australian
e-recharge service is that all the operators (not sure about newcomers
like Orange though) and most banks joined to provide this service on a
broad basis and nobody was excluded.
Japan has the infrastructure and the culture for doing rather well with
a properly done prepaid service. 24x7 convenience stores are at every
corner and they already provide a variety of payment services. Japanese
society is rather cash oriented. Further, manufacturers know how to
produce low cost mass produced electronics items. If J-Phone manages to
leverage this, their prepaid strategy could be working out very well
despite lower ARPU. Japanese mobile companies have enjoyed rather high
ARPUs compared to other countries anyway.
> Each market is unique, as your example with Italy (90% prepaid) shows.
> Australia is not predominanly a prepaid market, and Vodafone here has a
> larger portion of low spending prepaid customers than their competitors.
That's true, but I would say that most of that is self inflicted. When
VodaFone bought Australia's first and only prepaid operator a few years
ago, they had a nice lead in the prepaid market. It is largely due to
their "we are the prepaid leaders - who could challenge us" attitude
that they lost that lead. I wouldn't expect J-Phone to make the same
mistake.
The interesting thing with prepaid is that it is not only real-time
billing, it is also real-time competition, which requires real-time or
better still pro-active marketing. You have to monitor the market
constantly to stay abreast of your competitors. Every time someone's
credit has run out, they have a potential to churn. On the one hand this
makes it easier to steal business from your competitors, on the other it
makes it easier to loose your customers. Supermarkets and convenience
stores have always been in that position and they have a sustainable
business nevertheless.
> By the way, Benjamin, I have noticed how you manage to include a plug
> for CAMEL in pretty much everything you write these days...;-)
:-)
Well, admittedly I was never a fan of CAMEL, but in this particular
case, VodaFone spending $$$ on CAMEL in Europe while others hesitate,
with the main application being prepaid roaming, the point wasn't a pun
on CAMEL but to show that VodaFone appears rather committed to take a
lead in prepaid value added services. VodaFone being a driving force
behind J-Phone embracing prepaid (which is what you had raised doubt
about) would rather fit well with this observation. ;-)
kind regards
benjamin
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Received on Wed Oct 31 07:43:14 2001