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We Need to Talk About Prepaid

Steve Polsky
12/4/2018
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There are more than 5 billion mobile subscribers in the world. About 80% are on prepaid plans. Yet it's very rare that our industry -- via its major conferences, industry analyst output or news reporting -- ever talks about prepaid. That, in and of itself, is curious.

It becomes downright strange when you consider that mobile network operators (MNOs) spend hundreds of millions of dollars a year acquiring new prepaid subscribers, only to lose 60%+ of them within 30 days. In some cases, more than 80% of new prepaid users leave within the first 90 days in hyper-competitive markets. Think about it. All that opex invested in subscriber acquisition costs to re-acquire the same customers again and again and again.

Maybe prepaid churn is just a really unsexy topic. But maybe there are more human reasons we don't talk about it: It's a depressing issue, it's hard to quantify and it only seriously affects operators in prepaid-dominated emerging markets. Well, it is depressing, and it is hard to quantify. But it is certainly not an issue that will be unique to emerging market MNOs for long. And that is why we need to talk about prepaid.

An emerging global issue
In developed markets today, a reasonable proportion of subscribers are on postpaid plans -- though SIM-only deals are slowly changing this.

But consider the rise of the eSIM. What has to date been a B2B discussion focused around IoT use cases was last month vaulted into the public consciousness by Apple. The new iPhone XS and XS Max have introduced support for eSIM. And, as Light Reading and tech review sites like Pocket-lint explain, these open up the possibility of changing operator with a simple phone call or click of a button. In the US, AT&T Inc. (NYSE: T), T-Mobile US Inc. and Verizon Wireless have all announced support for eSIMs. And in the UK, EE promised to support eSIMs shortly after the launch of the new iPhones. (See Apple: It's the End of the SIM as We Know It.)

eSIMs erode some of the key barriers to postpaid churn. They have the potential to transform low-churn postpaid developed markets into highly volatile, high-churn markets more akin to what we see in emerging economies today. You can bet that some savvy MNOs and mobile virtual network operators (MVNOs) seeking short-term gain will capitalize on the situation. This makes learning the lessons of prepaid churn in developing markets all the more important.

Cracking the prepaid churn challenge
We have to ask ourselves: Are the high costs of acquisition and constant churn in prepaid sustainable in emerging markets looking to reduce opex? Can we allow this model to take hold in developed markets? The answers can only be: no, it's not; and no, we can't.

So, what can be done? The answer lies in creating "SIM equity" -- a strong, compelling reason for subscribers to stick with their operator on the same SIM or eSIM despite better short-term deals from competitors. It requires an approach that puts retention ahead of acquisition -- a monumental shift in MNO marketing strategy... especially in emerging markets.

Prepaid users are invisible to MNOs beyond a phone number and an account balance. In many emerging markets, the average prepaid user will experience a "zero balance" day every week -- one day where they have no credit and cannot use their devices. In these markets, many customers do not have formal financial identities. This makes offering credit to encourage continued service usage nigh-on impossible -- if you take a traditional view of credit, which is to say "no" a lot more than "yes."


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But it only takes an operator to say "yes" to, for example, a small interest-free airtime credit extension, to provide prepaid customers with the opportunity of a lifetime. Then, based on the subscriber's payback behavior, machine learning can determine individualized lending criteria based on real-time data. Using this model, an individual can continue to borrow and pay back larger and larger amounts of credit -- slowly building trust, reducing risk and building an identity score that creates a compelling reason to stay with their operator.

Seen through the eyes of customers, for the first time, an MNO has said "yes." Yes, you can have credit. Yes, you can use your phone. Yes, we trust you. Their SIM becomes the first "formal" proof of financial identity many have ever had. Their operator has become an enabler.

And by saying "yes" and meeting the demands of its customers at their time of need, the MNO in return benefits from improved engagement, increased subscriber lifetime value and, ultimately, reduced churn.

Building on SIM equity: saying "yes" more often
Offering airtime credit extensions is just the first step in building SIM equity. As the individual customer's identity score evolves -- factoring in thousands of data points from battery life to repayment times -- so do the opportunities for operators and customers. Advanced financial services like smartphone financing, payment options on cable and access to immersive content become possible for the first time.

It's this kind of positive, empowering approach that will slow the prepaid churn merry-go-round, reduce opex and drive revenues in emerging markets. But it's also a strategy that developed market operators can start to put in place to insulate themselves from the potential impacts of the eSIM. Prepaid churn may not be sexy, but it's a conversation we need to have.

— Steve Polsky, CEO, Juvo

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