Prepaid and Postpaid: It's Time to Converge

The mobile product offer continues to evolve. The volume and diversity of data services is the driving force behind today's market growth. An example: the market for content such as ring tones, logos and games in Western Europe alone represented 3 billion euros in 2003. Operators are under growing pressure to provide micro-payment systems able to match consumer demand. The solutions must be easy to manage for the end user, capable of processing large volumes of transactions and of handling increasingly complex value chains. Eliane Meyer, Marketing Manager for Bull Services Telco, Patrick Mocchi, Director of the Billing Competency Center at Bull Services Telco, and Fergus O'Reilly, Director of Product Marketing at Highdeal, discuss the challenges of integrating prepaid and postpaid payment systems in this changing environment , and how operators can get a head start in the move towards convergence.

Eliane Meyer , Marketing Manager for Bull Services Telco

Patrick Mocchi , Director of the Billing Competence Center at Bull Services Telco

Fergus O'Reilly, Director of Product Marketing at Highdeal

T R: Why do today's operators want to converge their prepaid and postpaid   payment systems?

Patrick Mocchi: Right now operators are delivering most of their marketing offers in the post-paid mode. When they want to promote new products in pre-paid, they find themselves blocked by the systems currently in operation. The systems are simply not flexible enough to integrate services such as downloads, roaming, LBS (Location Based Services) or bundled services, for example.

T R: Could you give us an example?

Fergus O'Reilly: Let's take the case of a special offer that involves a 10-day 30 SMS package with an included free ring tone download. Today's pre-paid systems can not handle the complexity of an offer of this type. They operate on a fixed fee basis calculated on the type of service used and the call location. In the network traffic flow they are unable to detect whether an SMS should be billed at the standard rate, or if a special rate should be applied.

Patrick Mocchi: It's true that while pre-paid systems have their drawbacks, post-paid systems lack the tools required for pricing and rating services in real time. They too have to evolve.

T R: Why are pre-paid and post-paid seemingly incompatible on the technological level?

Fergus O'Reilly: There's been a huge gap between the two worlds from the very start. The two systems require different teams, even within the same company. Traditionally, telecom operator IT services have always handled post-paid. They calculate the costs and bill according to the network data collected by mediation solutions. In the case of pre-paid, the transaction management software is directly integrated in the network infrastructure, so it is the network specialists who set the rates. Now the marketing arms within operators are seeking to merge these two historically divergent systems into a single seamless platform.

T R: Why is it so crucial that operators develop their pre-paid   payment systems?

Fergus O'Reilly: First of all, because pre-paid customers are, for the most part, youth and early adopters and these demographics constitute a strong target market for new added-value mobile data services: music and ring tone downloads, and localized content, for instance.  As the financial status of this population is still insecure, operators may want to keep these customers on pre-paid, while still developing a system capable of delivering these new services. Right now, market observers are waiting to see what happens when the U.S. market takes off. It will be an interesting test, as for assorted cultural and historical reasons, pre-paid payment solutions have never really caught on in the U.S.. Another strategy would be for the operators to convert pre-paid into post-paid customers, a more rewarding category in terms of revenue and loyalty. But how can you do that if users can't try out the new content and services? In both cases, you can see how important it is to be able to develop and bill new products in the pre-paid mode.

Eliane Meyer: That's why operators today are eager to launch new offers on the two markets simultaneously. This means that they have to act quickly on system convergence, first of all because of the marketing considerations cited above, but also for financial reasons that are quite obvious. Right now operators have to manage two separate infrastructures, two customer databases and two services catalogs. This "double duty" activity ends up making operations far more complex and costly.

T R: Then convergence should make it easier for customers to migrate from pre-paid to post-paid?

Patrick Mocchi: Yes, but not only that. It's also a valuable tool for increasing the per household penetration rate. Imagine a family where the parents are on post-paid and the children on pre-paid. If the payment modes are consolidated, content and services could be billed to the same account, but at different rates, depending on whether the user has unlimited access or not.

Fergus O'Reilly: Migration in itself would be a good thing, but if it is difficult technically and involves extra hassle for the end-user, it could increase the churn rate: customers might decide to change service providers when they switch from the pre-paid to the post-paid mode.

T R: What are operators doing right now to resolve the problem of convergence?

Fergus O'Reilly: When telecom operators have to upgrade their IT systems, they now include convergence in their specifications. One approach would be to wipe out the existing legacy infrastructures and build a totally new system from scratch. Few operators will opt for this solution because of the high costs involved. A more reasonable strategy would to continue using the legacy systems to process standard offers, and to integrate add-on capabilities for new products launched across both prepaid and postpaid. The system has to incorporate a real time pricing and rating engine that can manage both payment methods at once, and redistribute the data to the prepaid balance management and billing solutions already in place.    

Eliane Meyer: Bull, HP and Highdeal are currently developing a prototype for a leading French mobile operator using a model of this type.

T R: Could you tell us more about the different players and their contributions in developing this new solution?

Eliane Meyer: As I mentioned, Highdeal is contributing its real time pricing and rating engine to the project. But its contribution goes well beyond that. Its advanced, comprehensive and highly flexible solution enables users to easily define a catalog of offers with complete pricing flexibility. In addition, the Highdeal simulation module allows operators to not only design their offers but also to evaluate their potential profitability in real time. HP is including its OpenCall technology to provide the interface with the prepaid and enterprise IT systems. Bull will offer its know-how as an integrator to help build the platform, as well as its expertise in the area of mobile communications.