March 1998

THE RISE OF PREPAID CELLULAR IN LATIN AMERICA

BY THERESA LOPEZ-VIDEIRA

While most businesses and personal subscribers in the United States use wireless technology to expand their current communications options, in developing foreign markets such as Latin America, wireless phones make up the primary communications network. Resellers, subscribers, and companies that conduct business in the Latin American marketplace need to gain an understanding of the driving forces and market potential for wireless technology and services in this region.

In Latin America, the boom in wireless technology is fueled, in part, by current deregulation, liberalization, and privatization. With an inadequate wire-line infrastructure, demand for telecommunications services is far exceeding the supply capabilities — presenting service providers with significant opportunities — as well as challenges. Increased competition requires providers to be creative with service offerings to win new subscribers.

While demand is high, many potential customers have non-existing or poor credit histories and do not qualify for wireless services. Prepaid options are important value-added services because they make wireless communications accessible for any consumer or business user, regardless of credit card qualification or payment history, and have quickly become the predominant method of billing for wireless service in this region.

Prepaid and debit card services provide carriers and their customers with innovative means of delivering service to a much wider customer base than is otherwise possible. Prepaid services are paid for in advance by subscribers whose accounts are debited in real-time, helping subscribers to control and monitor their expenses. This expands the target customer base, thereby increasing the potential for market growth by both service providers and the companies supplying wireless products to this region. With no infrastructure to speak of, Latin America is investing all its funds in the latest wireless communications technologies such as PCS. The United States and other developed nations are not able to move as quickly as Latin America in adopting the emerging technology and applications.

UNTAPPED MARKET OPPORTUNITIES
Increasing market penetration coupled with macroeconomic factors such as income growth, currency stabilization, and investment inflows are bringing enormous opportunities to wireless service providers and those companies supporting this market. In addition, prepaid wireless is also opening opportunities for providers to reach previously untapped markets. These untapped segments include short-term rental customers and business travelers.

Travel between the countries and regions that comprise Latin America is critical to the economic growth of the overall market. However, international travelers in Latin America will not easily find basic telecommunications services such as pay phones, hotel phone service, and low rates that are common in other parts of the world. Prepaid service becomes increasingly important to provide communication options to business and vacation travelers in Latin America.

DEMAND FOR NEW SERVICES
As economies grow, customers are quickly demanding additional options such as voice mail, one-number services, and fax applications. This demand comes largely from the more developed areas of Latin America. For the service provider, enhanced services such as paging, short message service, and voice messaging help drive airtime revenue and keep customers happy. In many cases, customers receive prompts in a variety of languages and can attain the status of their accounts each time they log on. Most providers offer customers the feature of multiple calls during a prepaid connection.

The objectives of offering prepaid cellular service range from promoting new market segments and expanding service offerings, to responding to market needs and simplifying access to services. In order to meet these objectives successfully, service providers must be familiar with the characteristics of each of their target markets and how to tailor their range of services to satisfy their specific requirements.

CONTROLLED SPENDING MARKET
Latin America
A prepaid customer in Latin America chooses a billing plan with varied rates depending on the time of day. A minimum monthly charge is implemented, and a contract for 12 months is enforced by the service provider. Subscribers are charged a certain amount in advance, and each call debits their account until the prepaid limit is met. Unused airtime is credited to the next month’s balance. To qualify for this type of plan, the subscriber would need to meet a monthly income requirement and provide address verification. The target subscriber base for this plan would be credit-challenged and cost-conscious customers who want to precisely budget their cellular expenses.

Business Travelers and the Convention Market
This customer is interested in convenience and flexibility and usually spends significant time in airports, train and bus stations, convention centers, and hotels. For mobile individuals, communications rental equipment is an attractive option. To cater to business professionals, enhanced services such as fax, voice mail, and paging are offered or included with this package. Billing includes a flat fee and a per minute airtime charge.

INTELLIGENT NETWORKS
The popularity of prepaid wireless is expected to increase consistently in developing regions such as Latin America. A growing market trend is the wireless handset serving as a network telephone in an intelligent network (IN) environment . Areas like Latin America that have been quick to adopt wireless technologies are likely to lead the way to this new paradigm in computer-telephony integration. Creation and deployment of value added services (800# and one-number service) are possible with an IN peripheral node. Flexible call control management and user options make INs desirable in these emerging markets.

For resellers and other companies providing services and technology to the wireless network markets, the concept of an IN is enabling changes in the telecommunications infrastructure, transforming the telecommunications business from engineering-oriented supply to customer-oriented demand. INs deliver telecommunications services faster and are customized to meet the customers’ needs for cost-efficient and interoperable telecommunications systems with standardized and open interfaces.

In an IN, the wireless handset can serve as an Intelligent Peripheral. For example, a customer may take a call in their car on their wireless phone. Once they reach their home, they put the wireless phone in the base station and it immediately switches the call in progress to a wire-line network. The handset can be picked back up and used as a portable phone, that the user can carry from room to room. This allows users to control costs by managing network airtime. It also allows the user to choose the best option for their unique situation.

With this infrastructure in place, service providers, end users, and third parties can, in theory, create and modify services independently of switch vendors. The services and technology, as well as consumer education needed to support an IN environment, are the emerging revenue streams driving growth in this market. Latin America and other developing nations are likely to see these technologies reach them more quickly than those countries that must first update their infrastructure and legislative regulations.

Theresa Lopez-Videira is market manager, Latin America and Europe division, for Centigram Communications Corporation. Centigram is a global provider of wireless and wire-line messaging and communications systems that integrate voice, data, and facsimile information and make it accessible through a telephone or PC. The Series 6 platform is based on industry-standard hardware and software. Centigram is headquartered in San Jose, CA and has sales and support offices in North America, Europe, Asia, Latin America, and Australia. For more information, contact the company at www.centigram.com

For Carriers

• Opportunity to showcase marketing cpability and segment the market
• Less faud exposure
• Capture temporary market users:  business travelers, hotels, conferences, students.
• simplified billing process
• Guaranteed higher profit margins.

For Subscribers

• Convenient:  Off-th-shelf purchase and use.
• No need for established credit
• Wireless expenses become easy to budget
• Not locked into long sercie agreements
• Business accounts can offer cellular service to employees and calculate exact cost beforehand.

For Resellers

• Increasing demand for wireless handsets and add-on peripherals
• Revenue from service providers for signing new customers
• Savvy consumer brings revenue from upgrades