From Prepaid Zone to Postpaid Terrain
By Eric Ransdell, Thu Jun 26 08:10:08 GMT 2003

Migrating prepaid users to postpaid subscriptions is a costly endeavor for Asian operators. But how else could they entice these users to spend more, especially on mobile data services?

It's called M-Zone and its ubiquitous television ads featuring three young Chinese men who've clearly lost their minds over mobile data services. The three sit in a hospital ward madly thumbing imaginary mobile phones. It's "All About Youth," proclaim the ads. And if there was any doubt, M-Zone - a division of China Mobile's data services unit, Monternet - has hired the wildly popular Taiwanese rock star Zhou Jie-Lun as the frontman for its elaborate campaign.

The only problem is that in China, no one is quite sure what, exactly, being in the M-Zone is all about. Is it a package of services, a discount plan, a mobile phone club for young people, a higher state of consciousness, or what? As Craig Watts, an analyst with Norson Telecom Consulting in Beijing puts it: "We know it's new, we know it's cool, we think we want it, but we don't know what the price is or what we get."

In reality, M-Zone is a rather confusing youth-targeted plan that gives users discounts on SMS messages and their monthly subscription fees. Why it's significant is because it represents the first time China Mobile has attempted to migrate its huge prepaid user base over to monthly subscriptions. In China, and throughout most of Asia, the massive growth in mobile phone usage has been due to the prepaid market. In lower income countries such as the Philippines and Indonesia, prepaid users account for 95 and 83 percent of the respective total mobile markets. And though that may be great news for those interested in selling handsets or voice services, for carriers investing in 2.5 and 3G networks, it's the stuff of nightmares.

"It's sort of an airtime bomb," explains Anthony Robinson, a consultant with China Strategic based in Shanghai. "We're getting huge growth here in Asia, but because the bulk of it is in the prepaid sector, it's going to be extremely difficult to migrate those users over to the next generations of wireless services. Particularly given the fact that with prepaid cards being sold everywhere from convenience stores in Shanghai to sidewalk stalls in Jakarta, the carriers have absolutely no idea who these people are."

What's certain is that there is a huge number of them. According to the report Global Mobile Prepaid Strategies and Forecasts prepared by London's Baskerville in collaboration with Chorleywood Publications, Asia had 234 million prepaid users representing 54 percent of the total mobile market for 2002. By 2010, according to the report, prepaid is expected to grow to 784 million users accounting for 74 percent of the total Asian market.

By 2010 it's conceivable the wireless world will have made the transition to 4G. The question in predominantly prepaid Asia, is how will the region's carriers bring the vast majority of their users along for the ride? China Mobile's M-Zone represents one of the most straightforward solutions - which is to migrate prepaid customers over to subscriptions. China currently has in excess of 117 million prepaid users - which account for almost half the total Asian prepaid market - and though no one can be quite sure who they are, most analysts believe the vast majority are young people in the 18-30 range.

"M-Zone is a recognition that mobile data is the province of youth and this is the market they want to get," says Norson's Craig Watts. "The problem here in China is that because so many college students and young people use it, prepaid isn't seen as a low-status thing. In fact, for many people it's kind of a cool part of growing up. So what they're trying to do with M-Zone and its branding campaign is to make subscriptions even cooler."

Without migrating prepaid users over to subscriptions, it's going to be next to impossible for Asian carriers to segment the market, which is how carriers in Japan and Korea - the two Asian countries with almost no prepaid users - have been able to grow their 3G networks, by targeting their data services at different sectors of the market.

But in the absence of that, some Asian operators are trying out novel solutions to the problem of giving next generation mobile data service access to their prepaid subscribers.. Singapore's MI mobile operator, for example, recently introduced a service targeted at young customers that allows them to send MMS over prepaid. Malaysia's DigCom has begun offering GPRS to prepaid users. And in the Philippines one mobile operator is experimenting with an SMS-only card, which could conceivably become an MMS or 3G card.

Yet those solutions still run up against the biggest obstacle of all, which is that prepaid users are limited to the finite amount of money that's on their cards. The only answer to that problem is what's known "hot" billing, which enables carriers to calculate the cost of data services being consumed by prepaid users and then deduct them in real time. This involves expensive network upgrades that most Asian carriers - already financially overburdened by their investments in 3G - have yet to undertake.

As the Baskerville report warns: "Operators need to assess carefully how aggressively they should target the prepaid market with next-generation prepaid services. They risk losing revenue if they do not offer next-generation services to the prepaid market but they also risk losing money if prepaid do not spend enough to provide adequate ROI."

And therein lies the real conundrum of prepaid in Asia, particularly its poorer countries. "I think it's the wrong approach for a country where the billing is low to build a 3G network and then try to entice prepaid customers who are spending US$ 5 or US$ 10 per month, to suddenly to change their habits and start spending US$ 60 per month to justify their 3G network," says Gerhard Fasol, founder of Tokyo-based Eurotechnology Japan K.K. "Maybe these people can't spend that much?"

Of course that's what everyone said about SMS, which was originally only available to Asia's wireless subscribers before operators upgraded their systems to enable prepaid billing. Today SMS via prepaid is one of the main revenue sources for the industry. "What SMS proved," says China Strategic's Robinson, "is that in Asia, as elsewhere, no matter how you slice it, the future is data."

Eric Ransdell is the former Silicon Valley Bureau Chief for US News and World Report magazine. Now living in Shanghai, he covers mobile technology in Asia.