Hybrid Plans Are Helping to Fuel Dramatic Growth in Prepaid Wireless

Mobile virtual network operators are finding success in re-selling carriers' prepaid wireless service in part through their efforts to penetrate the youth and elderly markets, which are far less saturated than other age groups, according to a leading researcher. Adding to the MVNOs' ability to pick up new subscribers in these segments is their focus on selling so-called hybrid wireless plans, which combine the no-contract feature of prepaid wireless with credit card, rather than cash, payment. “The MVNOs have developed new products to target [the young and elderly segments],” said Judy Reed-Smith, chief executive of Atlantic-ACM, a Boston-based research firm, during a Web-based seminar presented today by FierceVoIP, an industry newsletter. The 25-49 age group is the most saturated wireless market, Reed Smith said, with a penetration rate of close to 80%. But about 55% of the 13-17 group are wireless subscribers, while penetration in the 70-79 age group barely exceeds 40%. MVNOs, which re-sell prepaid wireless service on behalf of fixed-facility carriers, should find hybrid plans appealing among these segments, Reed Smith says. The plans require no contract commitments, but offer rates that are lower than those for pay-as-you-go, or cash-based, prepaid plans, she said. Also, many in these age segments may have trouble establishing post-paid wireless accounts, in which carriers bill subscribers. About half of all applicants for these accounts are turned down, according to Reed Smith. Between now and 2009, she said, “Hybrid plans will have much more growth than pay-as-you-go.” Whereas hybrid plans generated about $3 billion in annual wireless revenue in 2004, compared to $4 billion for pay-as-you-go, the hybrid market will account for about $16 billion out of a total $22 billion prepaid market in 2009, Reed Smith projected. Revenues include both wireless service as well as data revenues. Indeed, the greatest revenue growth in prepaid wireless is coming from such content as ring tones, ring-back tones, and mobile games. The hybrid tactic, meanwhile, is helping MVNOs take dramatically large bites of market share from the wireless carriers. The re-sellers, which are typically large merchants with well-know consumer brands but can be street re-sellers, will control 63%–18 million–of the total U.S. wireless subscriber base by the end of the year, Reed Smith said, up from 50% in 2004 and only a third in 2003. By 2009, she predicted, the re-sellers will account for 80%, or some 33 million subscribers. The most prominent MVNOs in the U.S are 7-Eleven Inc., Boost Mobile, and Virgin Mobile U.S. (Digital Transactions News, Feb. 9).