Prepaid Market Set to Be the Fourth Quarter's Battleground

Watching market developments over recent weeks I can't help thinking that the prepaid segment will be the one that makes or breaks the fortunes of mobile device manufacturers and network operators in Western Europe in 2008.

We saw a similar turn of events last year, with the prepaid market seeing renewed impetus as growth in the contract market slowed. Many consumers turned their backs on lengthening contract terms, while attractive tariffs, high-spec handsets and low prices all worked to reinvigorate sales of prepaid phones.

The postpaid segment has had a rough ride over the last couple of months as Western Europe takes the brunt of worsening economic conditions. Consumer electronics can of course remain insulated from wider economic conditions. Other markets, such as cosmetics and home improvements, often see the same trend. The difference is that a mobile phone contract means a lengthy financial commitment — something that's far from a priority when finances and job security are uncertain.

It's this that will drive operators and handset manufacturers to pay more attention to the prepaid market in the coming months. Holding on to prepaid customers is always a problem, but this segment is the best way to attract new subscribers and increase your share of the market. Lower handset subsidies also mean that acquisition costs are lower. A prepaid subscriber can be profitable for a network operator in weeks, compared with eight to 10 months or more for a contract customer with a high-end phone.

Although operators have largely focused elsewhere in the first half of this year (USB dongles and SIM-only deals spring to mind), I'm expecting the prepaid market to really heat up during the second half, thanks to developments like cheaper tariffs, low prices, the prepaid iPhone and the launch of Comes With Music on a prepaid phone.

Vodafone's prepaid tariffs in the UK now include unlimited texts, making them much more attractive. I'm certain that other operators will be quick to follow suit, making such tariffs the most competitive we've ever seen.

Vodafone VF 527 in four colours

Vodafone also recently announced its 527 Rainbow phone (shown right), which is manufactured by Sagem. Available in a variety of colours for less than £30 in the UK, it underlines just how low the prices of prepaid phones have fallen. At this level, I expect we'll see intense competition in the run-up to Christmas. Manufacturers with a strong range of mid-tier phones that cater to the prepaid market will be best placed to do well.

O2 confirmed last week that Apple's iPhone will be available on a prepaid tariff, and Nokia finally announced its first Comes With Music phone. It too is a prepaid model: the 5310 XpressMusic. Other commentators have expressed surprise and disappointment at the use of a prepaid phone, but I think it's a shrewd move that puts Nokia in an exceptionally strong position. It's redefining the mid-tier of the prepaid market and moving it beyond mere price and tariff. Some of Nokia's rivals will have to slash the price of phones that compete with the Comes With Music handset as they resort to price as the only way to differentiate their products.

The prepaid market is very different from the one of two years ago. Manufacturers and operators that still think prepay equals "can't pay" do so at their peril.

This entry was posted on September 11th, 2008 and is filed under Devices. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Posted By Geoff Blaber On September 11th, 2008


Comments
(There are no comments yet)
Leave a Comment

Hot News

Team Tweets

CCS Insight
Verizon unveils ambitious plans to boost its wireless network in the US ahead of #5G deployment: https://t.co/0UeEBSfroj
Follow CCS Insight
Shaun Collins
RT @kestermann: Orange the latest telco to launch personal assistant. CEO @srichard introduces and demonstrates #Djingo on stage. #ShowHello
Follow Shaun
Ben Wood
Wow. @MyKronoz kickstarter campaign hits $4m for smartwatch with analogue hands. Impressive work by the team there.… https://t.co/EN0x25MCP2
Follow Ben
Martin Garner
@amazon launches DIY subscriptions service marketplace - interesting move with high potential for disruption. https://t.co/o6WxjfpYjv
Follow Martin
Geoff Blaber
RT @Mikel_Jollett: TRUMP: The protesters are paid. These marches are small. Well, here's Chicago today: https://t.co/iyfVfmFy8O
Follow Geoff
Marina Koytcheva
@nickmcquire @benwood @facebook @geoffblaber @martin_garner @shauncollins @George_CCS Don't judge too fast, dummy t… https://t.co/eokzYz2EdN
Follow Marina
Nicholas McQuire
Fascinating battle ahead> Microsoft starts integrating Dynamics 365 with LinkedIn to take on Salesforce https://t.co/LK9ftNAdPS
Follow Nicholas
Paolo Pescatore
#NABShow: One of the best racing car simulators I've tried and it's not #F1. Be rude not to try it again. On… https://t.co/oPqbilgGNu
Follow Paolo
Kester Mann
Just published – latest @CCSInsight Hotline provides an in-depth assessment of progress, achievements and challenge… https://t.co/oTpd8PLpg9
Follow Kester
George Jijiashvili
RT @benwood: Huge potential for VR beyond games. Smart move by @unity3d to move in this direction. https://t.co/OZSuFtG0M0
Follow George
Katie Taylor
Working on a new study on @SketchBookPro with the @AdonitNews Jot Touch stylus https://t.co/4m2Q9v0eUl
Follow Katie

Recent Blog Posts

Blog Post
Miles of Light Verizon to Buy Miles of Fibre for Fixed-Line and Wireless Se... Read more
Blog Post
Xiaomi Didn't Get the Big Device Memo Reveals Its New Mi 6 Flagship Phone On Wednesday at an even... Read more
Blog Post
Facing Reality Will Users Take to Facebook's New Dual Realities? For Faceb... Read more
More blog

Latest Company News

Blog Post
Sales of 5G Smartphones to Hit 100 Million in 2021 Over 10 billion mobile phones to be shipped in the next five... Read more
More news