Branching Out

WHILE THE SEED OF WIRELESS RESALE has matured into a mighty oak of a market, it has relied on a largely prepaid business model to date. Recently weve seen a different kind of nut, as postpaid operators have emerged to widen the focus for the market segment.

Ampds Hollywood phone was designed for the young and hip.

The margins were really great in the prepaid space, and you had no worry about bad debt or cash flow, says John Marick, CEO of Consumer Cellular Inc., which has been a private-label wireless reseller for almost 11 years. But as that space has filled up, carriers got more aggressive, and the MVNO market has started to look for new, underserved areas. Thats one reason why were starting to see postpaid emerging now.

Indeed, postpaid service is a better fit for certain demographics, from a branding perspective. For instance, Voce, the Los Angeles-area luxury MVNO, charges $400 per month and a one-time $1,000 upfront fee for membership. Included in that is unlimited, worldwide voice services, yearly device upgrades, 24-hour concierge/personal assistant services for everything from restaurant bookings to sending flowers, in-person technical support and a travel desk including access to the Avion Jet Club, an alternative to time-sharing a private jet that also includes pickup and drop-off. The beautiful people just dont mix with prepaid.

Prepaid customers are anonymous customers, says Steve Bamberger, industry vice president of communications, media and utilities at Oracle Corp. With postpaid, theres a preconceived notion that you have a relationship with your customers. You go postpaid if you want to know your client.

There are other ways prepaid can fit a brand. Consumer Cellular focuses on low-use, casual convenience customers, especially seniors who want a phone for safety purposes. Another customer target would be soccer moms that need to check in with various offspring and family members, but arent big cell talkers generally. Consumer Cellular packages start at $9.95 per month and include free text messaging. There is no data component to the service, since host carrier Cingular Wireless has yet to make those services available to wholesale customers.

Our strategy has been to simplify the offers, says Marick. Rather than having several different phones in the same cost category, we have phones with distinctively different price points and features, for instance. That principle extends to the billing.

To the point, topping up an account or checking the account balance on the Internet or through an IVR adds an extra layer of action for the user to go through in order to use the service. For seniors, that can be confusing, says Marick.

Retirees also might find the notion of paying upfront somewhat insulting. You know, theyve been around a while and pay their bills on time, why should they have to be considered a risk? explains Marick.

In a similar vein, GreatCall Inc. is a postpaid MVNO set to launch in the fall on the Sprint Nextel Corp. network, with service aimed at boomers and their parents. It will be available on the Samsung Jitterbug phone, created just for seniors with features like large buttons and screen type, enhanced audio and a cushioned earpiece. The service also includes easy-to-retrieve voice mail and 24-hour live operator service.

We created Jitterbug to help boomers and their parents take advantage of todays complex cell technology by providing a simple phone experience because nothing should require a manual, said Arlene Harris, CEO of GreatCall, during the product unveiling at CTIA Wireless. That includes consuming the service itself no word yet on the rate plans, however.

On the other end of the age spectrum is Ampd Mobile Inc., the uber-hip MVNO launched about eight months ago on Verizon Wireless 3G EV-DO network. It targets the popular 18-to-35-year-old tech-savvy segment, but is differentiating itself on content like extreme sports video streams (SuperCross, skate- and snowboarding, and professional bull riding coverage, as examples), live concerts and other events the company formats and broadcasts itself, and licensed television and movie clips. And the company focused heavily on developing its proprietary user interface. Via the Ampd Live portal, users can go into a band page, say, and see every content asset associated with the group and its members, eliminating the hunting and pecking typically associated with mobile content discovery.

The provider thus launched as a postpaid service, positioned as a high-end offering. You have to message a product carefully and establish a brand, which is hard in a space thats being pioneered, says Geoff Fishman, senior vice president of sales and distribution at Ampd. Ampd speaks to lifestyle enablement, and thats a new language to customers. We want to give people what they want, down to the billing options.

Ampd offers buckets of voice minutes from $30 to $150 per month, with the latter being an unlimited service that includes push-to-talk, text and picture messages. Otherwise those services cost $1 per day, 10 cents and 25 cents each, respectively, or users can layer on standalone use packages for any of those services that run between $15 for unlimited messaging to $5 for 50 text and 50 picture messages for the month. Multimedia services are additional for all the buckets and come in two packages, for $15 or $20, depending on the amount of access desired.

Despite all that, Ampd recently did add a prepaid option for 10 cents per minute plus additional service fees. The convergence between pre- and postpaid will continue as this market unfolds, says Fishman. We learned that some consumers are looking for the prepaid flexibility. The majority of users, however, will continue to sign on for the postpaid service.

GreatCalls Jitterbug phone, by Samsung, was designed for seniors, boomers and anyone who wants a simplified interface.

Such flexibility may come in handy as a differentiator, since Ampd isnt the only fish in the 3G MVNO bowl. Helio LLC, which launched earlier this year on the Sprint network, is another postpaid, content-rich wireless provider targeting 18-to-35-year-olds. A joint venture between SK Telecom and EarthLink Inc., aims to bring South Korean-style multimedia and community services to the United States. One mission statement reads: Helio puts you + your friends (not rates and minutes) at the center of our business, because the most important thing a mobile service can do is better connect you to your friends.

True to that style, the company signed a deal with online social networking site MySpace.com, its biggest content differentiator to date. MySpace on Helio lets the 55 million MySpace users post photo bulletins directly from Helio devices, compose MySpace Mail, view their friends pages, post comments and add new friends when out on the town.

As for pricing, Helio offers 1,000 minutes for $85 per month, 1,500 for $100 and 2,500 for $135, with all content and activities included. An alternate content a la carte option is $40 per month for 500 voice minutes, plus the use of any multimedia services for 20 cents per kilobyte, plus content charges. Text messaging is 10 cents per message and international multimedia messaging is 25 cents per outgoing message.

Besides complementing the brand image, postpaid can also make the most economic sense. We offer a very deep content service, some included in the subscription and some a la carte, says Ampds Fishman. We cut across the spectrum of voice, data and video and need a pretty robust handset. And when a provider is subsidizing high-end handsets with the memory, resolution and battery life to support such 3G-enabled services, it needs to be guaranteed a certain revenue stream from the customer something only a postpaid model can offer.

On a per-subscriber basis, the postpaid subscribers are the real profit generators for any mobile operator, says D.P. Venkatesh, CEO of mPortal. These are the subscribers that are less likely to leave/churn; they have one- or two-year contracts. These subscribers are also the best source for taking advantage of value-added services.

Postpaid also can be more lucrative. The postpaid business model delivers consistent average revenue per user every month, says Gavin Macomber, executive vice president and co-founder of MobileSphere, an MVNE. From an international longdistance perspective, postpaid MVNOs subscriber usage is not limited by prepaid amounts or replenishment requirements; therefore, ARPU is generally higher for postpaid subscribers.

Of course, going the postpaid route requires a more robust back office than the marketing-heavy, infrastructure-light prepaid plays that have gone before.

A benefit of being postpaid is that, once a month, the customer has something in front of them, says Consumer Cellulars Marick. But at the same time, billing and customer service are at the top of consumer complaints in the industry. One of the challenges is that weve been reliant on carriers to get the info correctly. Thus, the back-office integration with the underlying carrier is critical, so that the porting process and customer care is quick and accurate.

Another potential risk is the fact that customer-acquisition costs are higher in a postpaid world, so again, the ability to keep the customer long enough for the account to turn a profit is crucial for the model to work. We launched online only initially, but quickly discovered that theres a fundamental need for the tactile sale our target customers like to look and feel the handset, to see how it associates with their lifestyles, says Fishman. Especially when theyre committing to spending X number of dollars per month with Ampd. Thats a distribution challenge, he adds. The company is turning to retail outlets like Best Buy, but also independent wireless dealers to get the word out. It will also sell the service wherever our customers are, such as concerts and events.

Another risk in the postpaid world is fraud and bad debt, since call detail records come from the host carrier at the end of each month. Subsequently to the MVNO, postpaid MVNOs may not be aware of fraudulent usage for at least 30 days, says Macomber. Real-time billing and user-specific monthly spending limits can go a long way to eliminating the problem.

So weighing the risks and the benefits, how the MVNO model plays out may boil down to basic business sense and good partners. Even so, The Wall Street Journal reported in June, however, that many MVNOs were floundering, fingering big-brand postpaid MVNO ESPN Mobile, for one, as losing money. The MVNO game may sound like an attractive cant lose proposition, says Mark Sloan, vice president of the professional services group at Convergys Corp. There is however, no guarantee of winning. Becoming an MVNO is not a simple brand-extension exercise, but rather, is equivalent to the creation of a whole new business. To achieve success, MVNOs must devise and execute a strategic plan that includes business case development, business architecture design, and a road map for moving the business into operation.

He adds, Operationalization where the rubber meets the road has typically been where MVNOs have been most challenged. This is where risk mitigation should take a center stage over other factors like cost.