Can Telcos Get Rid of Prepaid Subscribers in 2019? Featured

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Can Telcos Get Rid of Prepaid Subscribers in 2019? Image Credit: Rawpixel.com/Bigstockphoto.com

In an ideal world, mobile operators want to have 100% of their subscribers on postpaid plans. Moving everyone from prepaid to postpaid helps to predict revenue, lowers distribution costs, reduces churn from price-based provider switching, creates growth in digital services consumption and reduces potential criminal usage of anonymous SIM cards. Sounds amazing, but is it possible to get there?

In Western markets, postpaid has had a bigger share than prepaid for a while now. But it has taken telcos a while to reach this and prepaid isn’t completely gone. In Germany, prepaid usage has declined by 20% over the past five years but still remains at 42% of the total user base. The major driver of postpaid growth has been device bundling: fixed term contracts with phones and services sold to subscribers as one package.

When your model doesn’t work like it used to before

Unfortunately, today device bundling is no longer sufficient and copying the model will not lead to the same results. The reason is that subscribers do not care as much about the phone itself but rather what they are able to do with it. On top of devices, digital services bundling has grown critical to get users to make the switch.

Practical evidence can be seen with European telcos rolling out more comprehensive bundles. In addition to the device and telco service packs, music and video streaming, travel insurance and other digital services are now packaged together. Digital bundling has grown to be the new standard, with VOD bundles active in over 80 countries and music streaming bundles in over 60 countries. Telcos with broadband and TV offerings take this a step further, also consolidating their smart TV devices and subscriptions into the same packages.

The bundling strategy works because there is an organic match between devices, mobile data and digital services consumed. However, there is a major challenge for emerging markets’ telcos standing in the way of getting this strategy off the ground: lack of information about the subscriber.

Martin Koppel,
CEO,
Fortumo

Postpaid contracts that include bundling usually have a fixed length, which assumes subscribers will be able to pay the recurring fee during 12 or 24 months. In countries with low bank account ownership, there is not enough information available to assess the credit risk and bad debt likelihood of many subscribers.

Subscribers are also unwilling to sign up to long-term contracts in cases where they are unsure of whether the price will justify what they are getting for it. These reasons make it a tricky business to get regular prepaid subscribers to make the switch to a comprehensive postpaid bundle package.

#1: ThE rise of transactional bundling

Our prediction for 2019 is that more telcos will start offering digital service partnerships to their prepaid customers. This can be achieved through transactional bundling. With such a model, short-term benefits (digital service access) are provided to subscribers in exchange for recharging their SIM cards. Limited-duration data packs (e.g. unlimited data for 14 days) popular among the prepaid audience could also have such offers included in them.

Telcos will need to work together with their digital merchant partners to create compelling bundling offers for prepaid customers, taking into account the specifics of the segment. These include localized pricing and duration of the services packs (e.g. daily, weekly access) and using microlending to increase payment success rates in the case of subscription-based services.

#2: TESTING THE DIGITAL SERVICES MARKET VIA PREpaid SUBSCRIBERS 

When digital service bundles also become available to prepaid subscribers, telcos will have more information available for marketing. The information on which transactional bundles subscribers are activating and how often they are doing it gives inputs for which bundled postpaid packages to promote to those specific customers. At the same time, subscribers get a taste of the digital services they would be enjoying if they became postpaid. This makes them more likely to switch.

An additional benefit of prepaid bundling to consider is the challenge of SIM card switching. Many subscribers use services of multiple telcos based on the cheapest price. In case digital entertainment is linked up with their telco identity, it makes switching providers inconvenient and as a result, increases loyalty.

#3: Leveraging digital partnerships for more value

In parallel with expanding the availability of their digital partnerships to their own audience, telcos can also think about how to get more value out of these partnerships. Besides the standard model (telco-OTT) used today, the existing integrations can be leveraged in the following cases:

Expanding the bundle offers from mobile customers to TV/broadband customers

Reverse bundling, offering telco services for free when users start paying for the OTT services

Bundle partnerships for marketing purposes among existing partners, e.g. offering the identity and charging capabilities available to enable a music streaming and VOD service create a stand-alone marketing bundle

Telcos are the most logical partners for digital companies in growing their audience in emerging markets as the devices and connectivity are provided by them. The service-based approach (instead of the device-based approach) in growing the postpaid subscriber base is becoming increasingly important, but many subscribers are still not keen on making the switch.

In the next year and those that follow it, telcos will have to come up with ways to expand their digital offers to the prepaid audience to make the transition easier for them.

Martin has been managing Fortumo’s business development and growth activities from launch to today, where the company works with leading digital merchants and telcos in more than 100 countries. He makes sure Fortumo’s strategy is focused on helping its partners acquire, monetize and retain users.

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