Prepaid PIN Distribution via the Internet & the Cellular Retailer

Introduction
With the inevitable maturation of the cellular market, the number of new postpaid activations is shrinking. However, this maturation brings promise in the form of prepaid. While cellular and long distance prepaid itself is definitely not a new industry, this still relatively-untapped market sector offers greater growth potential than standard, post-paid cellular contracts. As technology has advanced, so too has the method for distributing and delivering prepaid pins evolved. Now, prepaid minutes can be purchased, distributed, and sold in real-time via the Internet. This distribution method offers great advantages and benefits to retailers.

This document looks to address the current prepaid marketplace and the potential for growth therein as well as the advantages of an entirely-web-based distribution method.

Why Prepaid? — The Prepaid Marketplace
At the end of the 2005 calendar year, there were over 200 million wireless users in the United States. Over 60% of US consumers now own a cellular phone. The question then becomes "where does the market go from here?" Carriers and retailers have recognized the appeal of the prepaid platform to new subscribers. Prepaid wireless is currently the fastest growing sector of the cellular marketplace.

Its fast growth can be attributed to a few different factors:

1. The Saturation of the Postpaid Market — With a penetration of over 67% of the current US postpaid market, the explosive growth seen for years is starting to wane. As this growth begins to plateau, carriers and their agents look to other sectors of the market to generate new subscription growth and revenue.
2. The Rise of Data Service Features — To fuel new subscriptions as well as to increase the Average Revenue per User (ARPU) from their current subscriber base, carriers are offering commission premiums to their agents to upsell data service features ("add-on features"). These features take advantage of new and existing technology in the cellular phones to provide advanced services such as text and picture messaging, downloadable video and music, and personalization features like wallpapers and ringtones. Interestingly enough, many of these add-on features are actually prepaid features, wherein a subscriber prepays a one-time fee for the feature or download.
3. The Rise of the MVNO — Based on the runaway success of Boost Mobile and Virgin Mobile, carriers are increasingly opening up their networks to Mobile Virtual Network Operators (MVNOs) as another way of generating new revenues. These MVNOs offer unique branded services that often differ from the carrier's network on which they share bandwidth. The most common business model for many of these MVNOs focuses on the prepaid marketplace.
4. The Demographics of the Remaining Marketplace — As mentioned, the postpaid marketplace has a penetration rate over 67%. The penetration of the prepaid marketplace, however, is only a fraction of that amount at 15%¹. So, who makes up this prepaid marketplace? There are three main groups: the "Unbanked", the Youth Market, and the Budget-Conscious or Infrequent User, who cannot justify a monthly subscription fee. The "Unbanked" is a term used to denote those who either do not rely on traditional bank accounts or who are credit-challenged. One out of every three potential customers for a postpaid account is rejected due to poor or inadequate credit history. With more and more attractive prepaid offerings, these consumers are now able to be brought into the carrier's subscriber base with minimal risk and the hope that they may, eventually, migrate to a postpaid contract in the future. As for the youth market, teens (13 — 17 years) and tweens (9 — 12 years) have no credit history, but they do have a disposable income. And, with parents looking to increase accessibility to their children but not at the expense of an exorbitant phone bill, prepaid becomes a very attractive option.