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10 Mega-trends on prepaid markets – Mobile Operators around the world are facing huge challenges

Even though by far the largest part of many mobile operators’ customer bases are today using prepaid products, the prepaid market has hardly developed strategically since the launch of the very first prepaid products many years ago…

When we examine the prepaid market, there is little doubt that many operators are seeing their prepaid business case develop negatively, and that what was once good business is developing into a less attractive business area, with operators in many countries fighting to move customers away from prepaid accounts and over to various types of postpaid products.

At Strand Consult we have spent almost 2 man years researching the prepaid market and we have identified 10 Mega-trends within the prepaid area that almost all mobile operators will need to address, if they want to avoid seeing the negative trends on the prepaid market continue. The 10 Mega-trends are:

1.   Decreasing traffic prices - outgoing traffic and terminated traffic
2.   Inexpensive or free on net traffic
3.   Cheap international traffic
4.   Cheap SMS packages with huge numbers of SMS
5.   Prepaid mobile broadband
6.   Increasing churn
7.   Distribution fraud - the race to increase the number of SIM cards is resulting in many SIM cards never being activated, or alternatively being recharged and used more than once.
8.   Decreasing top up prices - the use of electronic top up has reduced top up costs in many countries
9.   The increasing use of the Internet for distribution - online SIM sales and topping up
10. Multi SIM problems. An increasing number of customers have two, three or more SIM cards and use them depending on who and/or when they call.

Most operators recognise the above trends. In reality these trends are resulting in the margins on prepaid products decreasing over time.

In some countries the consequences are so large and competition is so fierce, that operators are experiencing increasing SAC and decreasing ARPU - and a churn rate that is simply exploding. A mobile penetration of over 120% is not a sign of a healthy market, but a sign that an increasing number of customers are choosing to use multiple SIM cards.

Around the world there are now operators that are seeing this segment of their business - that once was a cash cow - developing into a business that in many areas is becoming a nightmare. The price difference between prepaid and postpaid products is marginal, while at the same time an average prepaid customer has a significantly lower ARPU compared to postpaid customers.

As penetration increases and the battle moves from being a battle over new customers, to a battle over retaining existing customers, it is most often the pricing parameter that is used to compete over which operator a customer chooses for their telephony. And we are increasingly seeing that customers are choosing to have multiple SIM cards from various operators, basing their choice of SIM card on who they call, when they call and why they are calling. All customers are interested in is access to cheap traffic, without taking into consideration any impact this has on operators.

How can Strand Consult help you optimise your prepaid business case?
We have spent the necessary time to analyse and understand this market and have had a close dialogue with many operators around the world to collect knowledge, analyses and experiences from the global prepaid market.
One of our teams has spent two man years examining the prepaid market and has developed a number of concepts that can help turn the negative trends that many operators are experiencing today.

We know that knowledge is the road to success and the operator with the most knowledge and a structured approach to their prepaid strategy, will find it far easier to be successful on this market.

Our analyses show that many operators are currently using a great deal of their prepaid market resources on short-term solutions, solutions that are for example focused on matching competitor’s prices. But this behaviour is very similar to a spiral of death, that will slowly but surely result in an operator's prepaid business case developing negatively.

We therefore recommend our customers to purchase a customised Strand Consult workshop, where we together examine the prepaid market, how it has developed and how it will develop in the future. We can deliver a combination of knowledge, inspiration and a number of creative suggestions for concepts that our customers can immediately implement.

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