Summary
The shift to prepaid was not unexpected. In a recession, people tend to focus on cash management. Prepaid is an easy way to manage telecom costs.
Analysis
Prepaid (wireless and landline) has always tended to benefit from recessions or downturns in the economy. The question now is: Is the shift to prepaid permanent?
I don’t believe that postpaid will disappear. However, the question I am asking is will prepaid become more dominant than postpaid? If so, will the shift b e permanent?
The question can only be asked in the context of the emerging media/content driven business model. Right now, cellular carriers’ value is principally based o the number of postpaid customers they have. Postpaid customers are locked into contracts with terms running anywhere from 1 year to 3 years. Bottom line, the contracts enable carriers to claim a specific number of customers. Contracts create a stable environment by whch carriers can be valued.
In the case of the prepaid accounts, the customers are not contractually tied to the carrier. The customers are tied to the carrier as long as the prepaid account has cash in it.
In the old days, postpaid accounts were called "offline accounts". Offline accounts were called such because the carrier did not maintain a real time rating of the customers’ calls. Customer accounts were billed after the call was completed. Calls were not rated or billed against a cash/credit account in a real time fashion. Prepaid accounts were called online accounts because, the carrier’s billing systems had to rate and measure call usage in real time to ensure the customer did not exceed the money remaining in the calling card. In a prepaid environment think - real time deduction from a user account, hence the term, “online accounts”.
The wireless carriers today are facing a changing world where content is KING and the carriers do not control the content. The content is controlled by the content creators.
The current postpaid environment locks a customer to a carrier and not the content. The emerging market of mobile media users is loyal to the content creators and not the carriers. How many people have you met will listen to a specific singer or watch the film of a specific director? I doubt the content owners want to be handcuffed to a carrier. At the same time, the carriers cannot afford to lose content creators. The only solution is a revenue model that recognizes the value of the content and the viewership of the customers. I believe a prepaid model is more conducive to content distribution.
Postpaid accounts tend to be flat rate and do not lend themselves to the kinds of revenue generation that is possible and necessary in a media driven environment.
Prepaid lends itself to flexibility and customer usage.
