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June 11, 2007

Prepaid is for developing nations

This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Analysis By:
Carlos Silva, Director of Enterprise ServicesCarlos Silva
Director of Enterprise Services, Grupo Iusacell
Implications: High penetration of credit card usage and not having implemented "calling party pays" will make prepaid services in the US a commercial proposition with very limited appeal for both voice and data.

Analysis: Two conditions are necessary for prepaid services to be successful (widely adopted):

+ The introduction of calling party pays (which is not implemented in the US). So operators can heavily subsidize handsets and offer low prepaid tariffs (adding the revenue of entrant calls to the mix).

+ A low penetration of credit cards. Low penetration of credit cards it's a consequence of several factors (few population with a steady income, most population working outside the formal economy, etc.) that make difficult to for customers to sign contracts and for operators to collect monthly fees.

Last time I checked there was a .87 correlation among credit card penetration and adoption of postpaid mobile services (using data from the Bank of International Settlements and ITU).

None of those conditions apply to the US, where prepaid will stay as a niche proposition (for voice and data)

Mexico which is exactly the opposite case has more than 90% of prepaid users.

Other Analyses of the Same Source Article:
Selling Prepaid without hurting Total Churn and ARPU Ratios
June 17, 2007, Author: Gregg Kail, MBA, Reseller Manager, AT&T Corp
AT&T Adds Prepay Data and Messaging - So What?
June 15, 2007, Author: Jon Adams, Director- Wireless Technology and Strategy, Freescale Semiconductor, Inc.
Service Providers Remain Disconnected on Pre-Paid
June 15, 2007, Author: GLG Expert Contributor
Wireless Data for High End Users
June 15, 2007, Author: GLG Expert Contributor
AT&T prepaid service
June 11, 2007, Author: GLG Expert Contributor
AT&T should not expect too much with prepaid data, indicate European learnings
June 11, 2007, Author: Tarik Fawzi, Chief Executive Officer, Aeneas Strategy
Is pre-paid wireless data service poised for success?
June 7, 2007, Author: GLG Expert Contributor

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