Cellular Firms Target Booming Market for Prepaid Calls
As competition heats up in the Southern California cellular market, wireless providers are adding customers at a frenetic pace, many of whom pay for cell phone service upfront to avoid credit checks or control monthly charges.
Considered the fastest-growing segment of the cellular market, prepaid cell phone service provides Southern California’s wireless carriers with a powerful way to lure new customers from among the 85% or so of Angelenos who don’t yet own a cell phone.
“In areas such as Los Angeles, there are a lot of ethnic communities from Latin America and the Pacific Rim that are very focused on cash--for them prepay makes much more sense,” said Herschel Shosteck, president of Herschel Shosteck Associates, a cellular research firm in Wheaton, Md. “While their fiscal integrity is impeccable, their credit rating is zero.”
In most cases, carriers use prepaid phone cards to provide these wireless services. But the per-minute rate for prepaid wireless can be twice as expensive as regular cellular service. Some also handle voicemail, call waiting or three-way calling.
With no monthly fees, contracts or, in most cases, activation fees or credit checks, prepaid cellular gives carriers a means to set themselves apart in a market rife with offers and counteroffers touched off by the entrance of digital carriers Pacific Bell Mobile Services and Sprint PCS into the market last year.
Designed to appeal to the approximately 30% of cell phone applicants who are turned away because of poor credit, prepaid service is also proving popular among managers looking to cap employees’ cell phone costs and parents who want to put kids on a “cellular allowance.”
Although the prepaid cellular segment now claims fewer than 500,000 of the 53.4 million cell phone subscribers in the U.S., it’s expected to become a $2.2-billion industry with about 2.7 million subscribers by 2002, according to the Yankee Group, a Boston-based research firm.
But experts caution that carriers may not realize these projections if they fail to bring down the per-minute costs for prepaid service, which often run 30% to 40% higher than regular cellular service.
Since Pacific Bell Mobile and Sprint PCS entered the Southern California market, dominated for 13 years by L.A. Cellular and AirTouch Communications, prices for regular cell phone service have dropped by about 30%. There’s no significant reason why prepaid service charges cannot drop by a similar amount, analysts say.
“Historically, prepaid minutes have been priced at a significant premium to standard wireless minutes--in some cases double what regular cellular time is,” said Mark Lowenstein, vice president for wireless research and consulting at the Yankee Group. “They are priced at too great a premium. To match the market growth of other cities, Los Angeles carriers need to realize prepaid is not a service merely for the credit challenged.”
But carriers say beefing up their prepaid offerings presents significant hurdles, especially in the area of customer retention.
L.A. Cellular and AirTouch rolled out prepaid wireless cards in Southern California last year. L.A. Cellular’s PayFirst service allows customers to buy prepaid cards in $50 increments at 7-Eleven stores and $50, $100 and $200 increments at L.A. Cellular stores. There are no activation fees for the service, which runs about 75 cents a minute for local and long-distance calls made from the carrier’s home area and $1.95 a minute for roaming.
Consumers use directions on the prepaid card package to sign up for L.A. Cellular’s service.
AirTouch’s Prepaid Cellular offers cards in $30 increments at AirTouch retail stores. The service, which runs 75 cents a minute for local and long-distance calls made from the carrier’s home area and $1.75 a minute plus tax for roaming, generally requires a $30 activation fee, though that may vary by retailer.
Announcements made during each call with these cards let consumers know the number of minutes and the dollar amount remaining on the card. The cards do not allow for additional services like call waiting and voicemail.
The carriers’ limited ability to provide a full slate of services in prepaid plans is why Pacific Bell Mobile has opted not to offer a prepaid option now, said Stephen Krom, Pacific Bell Mobile’s vice president of marketing.
“We’re looking into a prepaid criteria, but we want to make sure it is a full-functioned service with everything that everyone else has,” said Krom, adding that PacBell is considering allowing customers to pay bills in cash at retail outlets.
Sprint PCS provides voicemail, caller ID and three-way calling with its prepaid cellular plan, which comes in increments of $75 or more at 75 cents per minute in Sprint’s home calling area. The plan does not allow for roaming. Sprint requires a credit check with its prepaid plans.
When consumers’ minutes run low on this plan, callers are transferred to a customer service representative who will ask them if they want to pay for more time, said Rod Egdorf, Los Angeles area vice president for Sprint PCS Southern California/Nevada. Sprint’s service provides the first minute free for incoming calls. Consumers would need to purchase a phone from Sprint PCS to use the prepaid service.
Although major carriers provide most of the prepaid wireless services, several resellers also offer the option. Fast-growing prepaid card provider SmarTalk TeleServices plans to roll out its wireless prepaid service during the second quarter. The plan will allow consumers to use any of its prepaid cards to make wireless calls.
Consumers can purchase the cards at any of SmarTalk’s outlets, including Sav-On, CompUSA and Ralphs. To use the service, consumers must have a cell phone reprogrammed with a SmarTalk phone number. They then would call the company’s service center, give them their new phone number and their phone card number, and ask that a bank of minutes be set up.
Costs for SmarTalk’s prepaid service, which is administered through resale agreements the company has with various carriers for both land-line and wireless services, vary from retailer to retailer.
SmarTalk will debit three minutes from a prepaid card for each minute of cellular service. It will debit six minutes from the card for every minute of roaming on the cellular service.
For instance, SmarTalk offers a 1,000-minute card at Office Depot for $169, which translates to 51 cents per minute for regular cellular service and $1.02 for roaming, said William Kahn, vice president of corporate communications for SmarTalk.
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Times staff writer Jennifer Oldham can be reached via e-mail at jennifer.oldham@latimes.com
