Mobile Data: Prepaids Next

Posted: 3/2004

Mobile Data: Prepaids Next

By Mark Denton

As mobile voice services continue to
mature, most service providers are finding slowing market growth, requiring that
they implement new services to maintain revenue. Prepaid data services are one
market segment that provides immediate revenue opportunities. While the ideal
subscriber is on a monthly postpaid service, the reality is service providers
need to find ways to add new subscribers. The prepaid market provides an
opportunity to attract new subscribers and, eventually, transition them to
postpaid services.

Traditionally, prepaid services have met the needs of the
credit-challenged: those subscribers with either bad credit or, in the case of some
young people, no credit rating at all. Research indicates the youth market
presents the best opportunities for prepaid data services, particularly as its
undersaturated by wireless, and shows the greatest appetite for wireless
services. Research firm IDC recently reported overall consumer subscriber growth
was expected to dwindle from 7.6 percent in 2003 to 0.3 percent by 2007; many
U.S. carriers actively are pursuing youth and young adults as the next frontier
for growth in wireless services. IDC also notes carriers will have to adopt
unconventional business models and marketing approaches to capture this elusive
market. And research from In- Stat/MDR shows carriers such as Verizon Wireless,
AT&T Wireless and Cingular Wireless all have rolled out prepaid services
specifically targeted at kids and young adults.

While the prepaid market once was considered a bad market
because of its low average revenue per user, it is now a healthy market with
attractive revenue growth because it offers a method of gaining access to
otherwise inaccessible markets such as youth. Driven by the youth market,
applications, primarily messaging such as multimedia messaging services (MMS),
will provide revenue opportunities. In fact, In-Stat/MDR reports the worldwide
market for MMS will experience a compound annual growth rate of 141 percent
between 2002 and 2006, growing from about 30 million subscribers in 2003, to
more than 265 million in 2006. Other fast-growing applications include Internet
browsing; customization, such as ring tones and screen savers; and file
downloads, such as pictures using camera phones.

Once prepaid customers are active, they can be converted to
postpaid accounts, particularly youth who are in the process of generating
credit histories and establishing their service preferences.

Prepaid service plans typically require that subscribers prepay
for a period of time, or a quantity of service, such as x minutes. Service
plans for prepaid data can be somewhat more flexible. In general, the service
provider may not bill for the data transport, but will be able to create plans
that provide for:

  • Charging per message for MMS, plus
  • Charging per item
    download and
  • Charging a flat fee per month for browsing.


To be successful in the prepaid data
market, service providers must change they way they think as it relates to
accounting for usage. Service providers must find alternatives to double
charging as this model isnt acceptable to this market. Double charging refers to when users pay for access plus what
they do with that access a common billing scenario in postpaid services. This
is acceptable to subscribers who are concerned with not only the speed of the
service, but also the quality of the data pipe and will pay a specific monthly
service fee for guaranteed quality of service. In the case of prepaid services,
especially for the teen market, subscribers are only interested in what they can
do, not how its done.

Solutions to this quandary may include:

  • Using multiple network access identifier credentials one set
    per application (for example. for browsing, 6135 for push-to-talk (PTT) and 6135
    for MMS). Different credentials make it easy to identify the user and the
    service. For example, the service is and the identity is
  • Employing a post-processing method to take records of usage
    from an M MS and credit the volume of the messages in bytes back to the users
  • Using a network sniffer to sniff and credit application usage
    (same as the post processing method but done in real time).
  • Using a PDSN that is capable of counting some traffic but not
    others (for example, the PDSN understands that MMS is billed by the MMS server
    and so does not count bytes to and from the MMS server).

Telecommunications Industry Association Standard IS-835C
published in 2003, governs prepaid data service standards and defines the
ability for a Packet Data Serving Node (PDSN) or Home Agent (HA) to meter
prepaid usage. In the IS-835 standards-based service model, the PDSN or HA has
prepaid capabilities, and meters a subscribers session based on a quota
supplied from a prepaid system. Once the quota is used up, the PDSN replenishes
the quota by sending a request to the prepaid system via the home RADIUS server,
which will either send another quota or send an access reject message. At this
point, the subscriber is either disconnected or hotlined to a portal to top up
the prepaid account.

Currently most deployments are applications based, such as
browsing on a fixed per-day or monthly charge and MMS on a per-message charge.
Standards-based solutions will provide a wider range of revenue- generating
options such as volume-based usage. Although standards- based equipment wont be
readily available until late 2004, prepaid data services can be deployed today
with equipment that will conform to the standard as it becomes widely adopted.
Service providers should make the move into prepaid data services now, in order
to establish a strong foothold in the market, and realize immediate revenue from
this growing market.

Mark Denton, is the director of product management for
Bridgewater Systems Corp. and has about 10 years of industry experience in
mobile communications.

He was an integral part of the deployment of Bridgewater
Systems solutions into the first 3G networks in North America, Verizon Wireless
and Bell Mobility.

AT&T Wireless
Bridgewater Systems Corp.
Cingular Wireless
Verizon Wireless

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