Phone carriers chase prepaid callers
As the number of new high-end cell phone customers dwindle, carriers are battling for the former dregs.
Prepaid customers, who buy a set number of minutes up front instead of paying for calls after the fact, have had a negative image because they spent less, had lower credit ratings and were less loyal. But carriers faced with a maturing industry are now treating them like royalty with cheaper minutes, better phones and more features.
Prepaid customers account for almost 10 percent of U.S. cell phone users, or about 10 million. That is up from two million in 1998, Yankee Group says. Major carriers came out with new prepaid offerings late last year, and marketing wars are brewing, says Yankee Group analyst Knox Bricken. "Their traditional subscribers are being tapped out," she says.
Prepaid service in the United States won't approach the 70 percent adoption rates in some countries, analysts say, but more customers are being lured by:
Price. The average prepaid rate nationwide is about 35 cents a minute, down from 87 cents in 1998. Verizon Wireless, the nation's No. 1 wireless carrier, charged up to 85 cents a minute for local prepaid calls three years ago, and $1.15 for long-distance. It now charges 13 to 33 cents a minute, and 10 cents on weekends, for local and long-distance calls.
More choices. "You are going to see the classy luxury packages become available," says Daniel Briere, chief executive officer of consulting firm TeleChoice. Verizon prepaid customers can now choose from a dozen phones, up from three in 1998. AT&T Wireless, the No. 3 carrier, now offers free voicemail and caller ID on prepaid plans. Sprint PCS doesn't have a regular prepaid plan. But customers can purchase a plan that limits their monthly spending.
Promotions. AT&T last year started selling prepaid kits in some 7-Eleven and Best Buy stores. Cingular Wireless targets customers with calls to Mexico billed at the regular domestic rate. To reach teens, Cingular recently sold minute cards featuring the Backstreet Boys in Puerto Rico. Verizon's Mother's Day offer, for the "mom who wants to give wireless a try," includes 50 percent more minutes free.
While prepaid users spend about $30 a month, compared to $52 by contract customers, analysts say costs are lower for carriers because there are no bills and fewer customer service demands. "I look at prepaid revenues almost as free revenues," Tucker Anthony Sutro analyst Tom Friedberg says.
Prepaid plans let consumers and businesses get a grip on expenses without the hassle of credit checks, monthly bills or contracts. Prepaid kits often range from $50 to $200, including a standard phone and a block of minutes to get started. Customers get more minutes by buying phone cards that are activated through a toll-free number.