TeleSemana is the leading online multimedia publication covering the telecommunications industry for telecom professionals in Latin America.
Telecommunications operators are going through complex times. They seek to increase their revenue within a new digital ecosystem that is changing every day and must find their place of prominence. With this in mind, service providers who provide mobile or fixed services (or both) are adjusting their strategies to acquire and retain customers to increase revenue.
To date, mobile services have been more desirable among users, although the allure of new smartphones and next-generation cellular network technology, such as 5G, do not have the same effects on customers as a few years ago.
Fixed services, on the other hand, find content, especially broadband, as their raison d’être. As next-generation IP services are rolled out, more network speed and bandwidth are required to satisfy the need of those who are already connected. Over the last few years, most markets, such as Latin America, have experienced a drop in the number of fixed voice lines and growth in broadband accesses. For example, between December 2019 and March 2020, the number of broadband lines in Brazil grew by 400,000 to reach 33 million. In the same period, telephony fell by 800,000 lines to close the first quarter of the year at 32.7 million. In Chile, the number of fixed broadband connections was at 3.48 million in March (it added 126,000 users in one year) compared to 2.7 million fixed voice lines, which lost 220 thousand lines. Such examples are multiplying around the world.
Although it is often done across various markets, the comparison between mobile and fixed broadband is inadequate. In the case of mobile, it is an individual service, so it adds several million more users, while fixed broadband connections are at home. The parallel between the use of both services is also forced. At a time when working and learning remotely have become a necessity for millions of people due to the pandemic, the difference in the use of both access options becomes visible and the fixed ones become important for certain applications. For example, our new way of life has resulted in the higher consumption of video streaming over the Internet. In Argentina, this led to a 35 percent increase in traffic during March compared to February according to the Argentine Internet Chamber, while Chile also experienced a jump, moving up 30 percent in April compared to December 2019 according to the Subsecretaría de Telecomunicaciones (Subtel).
This reality highlights the need for a greater number of fixed connections. Even without a date, the scenario of social isolation will pass, but it will leave its fingerprints across different areas of society. For instance, many of the office jobs that were moved to the home will remain in the home. The same will happen with education and entertainment.
In other words, fixed services are experiencing moments of a resurgence, and the option to offer them prepaid presents an opportunity during these difficult times as this payment method provides predictable and viable financial costs to consumers who are looking for a quality broadband service. In this scenario, and with new prepaid offers, operators can gain new subscribers, recover old ones, and retain current ones.
Prepaid as a viable alternative
Generally, the prepaid user is thought of as a low-value customer. However, this need not be the case. Digital generations, commonly referred to as “millennials”, are hyper-connected and constantly looking for new proposals, which leads them to be mistakenly characterized as “unfaithful” to brands. A prepaid offering can be attractive to those who are interested in trying new service package options, both for fixed connection and video streaming, and want to avoid the signing of a contract.
Another attractive customer segment for prepaid offers are people who don’t have bank accounts. For example, although banking rates are growing in Latin America, large swathes of the region's population lack traditional and digital financial services, including credit cards. With different service top-up options (prepaid cards, cash) they can be the target of tempting offers for fixed connections.
In addition, bad credit scores leave thousands of people out of the market who have fixed network coverage available in their homes and want to have a broadband connectivity service. With prepaid offers, operators have an opportunity to expand their subscriber base where their networks already exist. Operators reject between 15-20 percent of new service requests due to bad credit. Given that prepayment is free of delinquency, which results in lower administrative and collection revenue for operators, the prices of prepaid services tend to be more expensive.
Sometimes, prepayments are a way to test the service and that the customer then goes on to postpaid.
In some cases, the activation and installation of new prepaid fixed connections within the home can be done by the end-user. In others, if the service is already installed, pre-payment activation can be done from the operator's back office.
The fixed services market has evolved, regardless of the last mile technology used: cable, fiber, wireless, or satellite. All are capable of delivering greater capacity at lower prices than previous versions. This translates into a virtuous cycle that results in commercial plans for the user with more and more “megabytes” and falling rates. Any comparison in time proves this.
However, the technological changes that operators must make require millions of dollars of investments that have to be recovered with falling access prices. Operational efficiencies and customer base growth may not be enough to improve business margins.
One of the alternatives that can gain ground commercially is prepaid plans for fixed services, which have already proven their effectiveness in expanding horizons in the mobile market and are gradually gaining followers in the fixed world.
Operators of different sizes using different access technologies began to implement this type of offer to stimulate the market and complement their postpaid strategy with different prepaid commercial options. The goal is to attract new subscribers, who for various reasons, do not want to be tied to a contract or retain those who no longer manage to maintain a payment program.
A case that illustrates the above is that of Verizon. It offers its fiber optic service, Fios, with monthly prepayment options and the customer can choose from a 200 Mbps connection for $39.99 or a 1 Gbps connection for $79.99. To receive this service, you do not need a deposit or sign any contract; there are also no credit checks. Monzoon provides broadband services in Switzerland, also on a prepaid basis, with xDSL and fiber options at different speeds and price points.
Another case is Compass, based in New Zealand, who offers prepaid broadband (fiber or xDSL) options per day, week, and fortnight. The only requirement from the customers is a $32 deposit that serves as a credit.
Examples of prepaid broadband are abundant around the globe with different offerings. Axxess in South Africa offers prepayments by amount of data, rather than time. That is, you can purchase 20 GB for $11 and recharge once the capacity is consumed. The service allows for any data not consumed to be “rolled over” to the following month with a term of up to three years.
In the above cases, the user can use their own modem or purchase the device from the operator. Verizon, for example, sells an FTTH modem for $199.99, of which $79.99 is credited for the service. The option to sell modems for prepaid can help alleviate the overstock an operator has, and be a source of extra income. There is even the opportunity to offer refurbished devices to customers, as seen in the prepaid offering from Cox Communications.
Latin America: Prepaid shows momentum
Fixed service providers in Latin America, especially broadband, have not made much progress with a prepaid model, despite the success shown by mobile operators with this form of advance charging.
One of the most successful cases in the region has been that of the satellite pay-TV operator DirecTV – in Brazil, Mexico, and Central America it provides services under the Sky brand – who offers different channel packages, which include high definition signals, the possibility to purchase premium packages, and have DirecTV Go, its streaming service. The customer must purchase the installation kit, which includes the antenna. In some markets, such as Colombia, DirecTV also offers the possibility of purchasing prepaid Internet access, with 4 and 6 Mbps download options.
In Argentina, there are fixed prepaid initiatives, both wired and wireless, with different business models. Telpin, the Pinamar Telefónica cooperative, a seaside resort 350 kilometers south of the city of Buenos Aires that receives thousands of tourists during the summer, offers property owners the possibility of purchasing fiber or ADSL connectivity by time. It consists of a base subscription, which is paid monthly throughout the year to keep the service available, and Internet access can be added for different periods of time, from three to 90 days in the summer season.
Another case is that of the cooperative Telviso in Del Viso, a city in the Pilar district, 44 kilometers from Buenos Aires. Telviso offers voice services with a monthly prepaid option, which can be topped up if the balance is used up. The service is used by people who lack the documentation required to sign a contract or have bad credit. Currently, 17 percent of the customer base opts for this type of offer; of these, 87 percent also have a broadband subscription.
In Latin America, fixed prepaid options are mostly oriented toward the rural markets. However, for bigger cities, prepayment can be used as an option to retain customers. In various areas of metropolitan cities, there are overlapping networks. In other words, households have more than one connectivity option, so they can easily switch broadband providers. Prepaid can work as an alternative to the definitive cancellation of a subscriber who chooses another operator. With home installations already carried out, operators can offer the transfer to a prepaid model to maintain connectivity backup and activate it if necessary.
Operators have networks and systems, but they require something new that sets them apart from their competitors. Prepaid fixed services are an alternative to make existing resources more efficient and generate new offers. They offer revenue opportunities through different strategies that go beyond postpaid.
There is a universe of users waiting for new proposals: new generations of consumers who do not want a contract, have a bad credit score, or even those who require temporary use of services, to name a few examples.
Incognito has a complete solution to support the rapid deployment of prepaid broadband services, with automated end-to-end activation processes and an integrated service catalog to define service offerings and fulfillment processes. The solution includes integration to payment gateways and billing systems, as well as enables the activation or deactivation of scheduled services, with formatted audit reports on the customer and their order history.
Article was prepared by Rafa Junquera, Co-founder & Editorial Director at TeleSemana