Prepaid Wireless Pricing Wars

July 19, 2010 - Openet

Mobile providers and retailers alike have long denied the existence of prepaid wireless pricing wars – yet rates have continually dropped, with providers going as low as $40 per month for unlimited mobile voice and data. That’s a full $10 less than Boost Mobile’s flat-rate prepaid plan, which sparked a bevy of competitors to match or beat that rate when it was launched last year.

The argument in support of these falling rates from both retailers and providers has been that cheaper prepaid plans have drawn an ever-growing base of subscribers, which offsets the low margins. But rather than let the free fall continue, which could eventually cannibalize the business similar to what happened to prepaid phone cards, some providers are putting a foot down with alternative rate plans. Those plans will offer a portion of services at a flat rate while charging for others. In the long run, industry players believe these new rate structures could change the look of prepaid wireless plans forever.
These plans are likely to range from split structures that allow unlimited flat-rate data but charge for voice, such as Virgin Mobile USA’s new Beyond Talk plan. Other plans may eventually offer flat-rate voice and basic data while charging for break-out applications that will emerge over time such as video, chat and other collaboration tools. These extra applications, it is believed, will be offered on a prepaid basis through retailers.
Beyond Talk: Voice So Doesn’t Matter, or Does It?
When Sprint’s Virgin division released its Beyond Talk plan in May, it seemed that flat-rate pricing had finally bottomed out. The plan offers unlimited data access for $25 a month. But Beyond Talk charges for voice in increments of $25 and $40 -- an attempt by the company not necessarily to get cut-throat on prices, but to target a specific audience and put voice back into revenue-earning mode.
“Boost and Virgin are trying to repackage that unlimited value prop, making texting a value proposition with compelling prices, but limiting their down side on the voice,” said Bryan Zingg, senior vice president of business development for ePay, a prepaid mobile distributor and payments company.
Virgin Mobile’s business director Wes Radez sees Beyond Talk representing not a free-fall in pricing, but a representation of the “inverted relationship between voice and data.”
“From the Virgin Mobile Beyond Talk perspective, rather than looking at data as second decision criteria where I need to first buy voice minutes, [you turn that] relationship on its head and you don’t need to think about voice first,” said Radez. Beyond Talk targets a younger audience that is focused more on texting, emailing and social networking sites such as Facebook. That’s not to say, however, they won’t want to purchase voice – and that their need for voice as a paid service won’t earn Virgin and its retailers important income.
That said it’s fair to say that flat-rate prepaid data-centric plans could face a pricing war of their own. And that could cause big problems considering bandwidth-intensive data applications depend on a stable network with lots of capacity. Providers can only make that happen with strong revenues.
AT&T: Just Say No to Flat-Rate Data
With that problem in mind, AT&T put its foot down in June and pulled back on its flat-rate unlimited data plan for prepaid and postpaid users on the iPhone and iPad. The company said the move was to ease up network congestion, which has clearly been a problem for iPhone users that have experienced application delays and dropped calls. Current subscribers can keep their $30 per month unlimited data plans, but new users will have to pay $25 for 2GB per month or $15 for 200 megabytes per month. Users can then add additional gigabytes at $10 each. Tethering to the iPhone and other smart phones will now require a DataPro plan, costing an additional $20 a month.
“I think what has happened is that with the rollout of any new devices, new services and new networks, there is always a challenge on the service provider to figure out what the projections are and if there need to be restrictions,” said Marc Price, vice president of technologies and CTO for the Americas of Openet, a company that provides technology for mobile operators to monitor application usage on the network in order to charge with new rate plans.
“AT&T has some outstanding devices in the iPhone and iPad, and they have been challenged to have those devices. They’ve decided it may be in the best interest of customers to reign in some usage,” he added.
AT&T is not alone on pulling back pricing plans that may challenge the fundamentals of running a profitable mobile business. A few months back, Page Plus Cellular raised its prepaid unlimited to $45 from $40 despite the fact that competitors like Metro PCS are still offering the lower pricing.
Price noted that as providers struggle to find the right pricing, it’s important to come up with new revenue streams so that they don’t run into public relations nightmares for dropping popular and cheap prepaid plans.
“The way [AT&T] has done it may not be the best approach since they offered an unlimited plan and then pulled it back,” said Price, adding that going forward, it’s best for prepaid providers to look at new types of pricing structures.
“Traditional models for prepaid and postpaid aren’t silos that are conducive to new revenues that operators need in order to benefit from increasingly data-intensive services,” said Price. “Enabling data and content services to be purchased in new ways is important.”
Application-Specific Pricing on the Horizon
That’s where charging for new prepaid applications comes in. As providers roll out faster 4G networks, and as they implement new ways of optimizing existing networks, they will offer even more complex mobile applications that will eventually be part of prepaid pricing plans as value-adds.
“Rather than paying for X number of gigabytes, which makes it hard to figure out how much subscribers are going to use, the better model uses tools so an operator can roll-out a plan that says [you can access] X number of movies, or games or hours of download,” Price said.
While providers are likely to first roll out these plans on tablets like the iPad, eventually they will offer them on a host of prepaid smart devices.
“Any touch screen makes it easier to use social networking or applications rendered by an operator,” said Price.
For now, providers haven’t found ways of monetizing social networking tools, such as Facebook, but that will change. They will eventually offer video chat, group chat, messaging and gaming wrapped into these social communities – and these applications will garner revenue.
“These are perfect examples of how a service provider can add value … monetizing the use of [social networking] services through relationship with partners,” added Price.
In effect, these will launch a whole new form of prepaid programs.
“This will give [service provider] marketing departments the ability to offer flat rate for entry point, and that’s where you’ll see that price competition; voice may become essentially free. But then premium services or applications on top of that will drive revenue,” Price said.
While these so-called mash-up applications may take time to evolve, retailers are already looking toward video chat as a near-term value-add.
“It won’t be long before we start seeing video and customers will be able to talk to one another and see each other’s pretty faces on the screen. Because of the bandwidth that requires, you could start [charging] separately immediately,” said Andy Zeinfeld, CEO of online wireless retailer Simplexity and its subsidiary
In the meantime, retailers are not exactly worried about prepaid price wars because the subscriber numbers are still swelling and, depending on the user, there is still a need for varying payment plans – even pay-as-you-go plans.
“Their [service providers’] incremental cost to add additional customers is very low because for the most part their infrastructure is already there,” said Zeinfeld. As for retailers, dropping prices is “not profitable” but contact with a growing pool of subscribers still gives them the chance to up-sell other products.
“For retailers, prepaid is like a gas station. They come often to get their refills and [retailers] have an opportunity to talk to them about a new device or feature or product line,” Zeinfeld said.



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