LatAm Embraces Prepaid Wireless Services

FORT LAUDERDALE, FLORIDA (07/17/2000) - Latin Americans are enthusiastically embracing the option to pay in advance for wireless services to the point where prepaid plans will overwhelmingly become the preferred payment method in the coming years.

By 2005, 81 percent of all wireless subscribers in Latin America are expected to be on a prepaid plan, according to a Yankee Group Inc. study completed last week. In México, for example, already 80 percent of wireless subscribers are on prepaid plans, according to the Boston-based market researcher and consultancy.

In 1998, 24 percent of all wireless subscribers in Latin America were on a prepaid plan, but that percentage doubled to 50 percent in 1999, according to the Yankee Group study.

"Prepaid is becoming a mass-market phenomenon in Latin America," said Douglas Thackery, sales manager of OEM (Original Equipment Manufacturer) sales at Corsair Communications Inc. at the Wireless Latin America conference held in Miami last week. Corsair, based in Palo Alto, California, sells prepaid billing systems to telecommunications companies.

The number of prepaid subscribers to wireless services in Latin America is expected to grow from 15.5 million in 1999 to 85.5 million in 2003, according to Olivia Gibney, a telecommunications research manager at Baskerville Communications Corp., a market research firm and newsletter publisher based in London. Prepaid subscribers in Latin America accounted for about 13 percent of the worldwide total in 1999, but will make up about 20 percent in 2003, Gibney said in a telephone interview.

Subscribers who pay in advance for service have more control over their spending, aren't forced to enter into contractual postpaid agreements and don't have to depend on the region's often faulty postal services to receive bills, Corsair's Thackery said.

"Latin American wireless customers have embraced prepaid," he said.

On the other hand, carriers like prepaid plans because they simplify their billing process, lower operational costs, decrease the incidence of fraud and attract new subscribers, he said.

"Carriers in Latin America are winning with prepaid," he said. "It's a better business model for them."

In markets that have adopted the calling-party pays policy, which states that people who originate a call pay for it, prepaid service tends to be even more popular, because subscribers can receive calls even when they have no cash in their accounts to make calls, he said, a point also made in the Yankee Group study.

"The (calling-party pays) environment in Latin American countries provides an incentive for subscribers to keep their (prepaid) accounts active," the Yankee Group report reads.

However, prepaid subscribers generate less revenue for carriers than postpaid subscribers, according to a recent report from The Strategis Group Inc. in Washington, D.C. Although per-minute charges are higher for prepaid subscribers, they tend to spend less time on the phone than their postpaid counterparts. Thus, the average monthly revenue per prepaid subscriber in Latin America is about US$21, while for a postpaid subscriber it's about $55 this year, according to Strategis Group.

However, carriers in the region are already finding creative ways to overcome this challenge. For example, some carriers now offer a plan that charges subscribers a fixed monthly fee on a postpaid basis at postpaid rates, which lets subscribers control monthly spending. If the subscriber wants to continue making billable calls, the user can buy a prepaid calling card, according to Yankee Group.

"These fixed-bill service plans offer an alternative to both standard contract and prepaid plans, as the customer will have no surprises at the end of the month but does not have to pay the higher per-minute rates charged by prepaid plans. For the operator, fixed bill plans ensure a recurring revenue stream every month," the Yankee Group report reads.

Yankee Group, in Boston, can be reached at +1-617-956-5000 or at http://www.yankeegroup.com/. Baskerville Communications, in London, is at +011-44-207-636-0545 or at http://www.baskervilleonline.com/. Corsair, in Palo Alto, is at +1-650-842-3200 or at http://www.corsair.com/.

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