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European mobile operators facing massive debt and market saturation are now examining the value of their less profitable pre-paid customers, Ciaran Buckley writes.

The finding is included in a new IDC bulletin, entitled "Customer Retention Strategies in the Western European Mobile Market, 2002." According to the research document, many mobile operators are still facing almost insurmountable debt, thanks in part to the high cost of 3G licences. As they look to pay creditors and face a saturated market, the telecoms have shifted their focus in order to reduce high subscriber acquisition costs (SAC) and churn levels, and are instead looking to their more profitable contract (post-paid) customers.

The attempt to reduce SAC has been focused on the pre-paid market, which constitutes 80 percent of some operators' subscribers, but only generates around one fifth of revenues, research indicates. Converting the 170 million pre-paid customers in Western Europe to contracts is seen as an important step in the process of retaining profitable subscribers.

"Operators had accumulated large bases of pre-paid customers in excess of 60 percent who were not spending money," said Paolo Pescatore, a senior analyst for IDC's European Wireless and Mobile Communications Service. "Pre-paid has led to more headaches than operators had initially expected - higher SAC and increased churn."

Operators aren't likely to alienate active pre-paid customers by nudging them into contracts said Paolo Pescatore of IDC, the author of the bulletin, while speaking to ElectricNews.net. "The pre-paid customers who are using their mobile phone will find that it's cheaper to be contract a contract customer," said Pescatore. "The line rental includes free calls and text messages and calls are cheaper."

Many operators only offer advanced services such as multimedia messaging and entertainment services to contract subscribers, but Pescatore believes that they will ultimately have to roll them out to pre-paid customers. "Ultimately the operators can't afford to ignore the huge pre-paid market," he observed.

Pescatore believes that the operators will have to develop new billing systems to accommodate the pre-paid market. "Text messages are charged on a per unit basis, rather than on the size of the message," said Pescatore. "MMS messages will have to be charged based on the size of the message, so billing solution providers are going to have to come up with a solution for pre-paid users."

Commenting on the high average revenue per user (ARPU) figures enjoyed by Vodafone and O2 in Ireland, Pescatore said, "Either the Irish operators have been more successful in encouraging subscribers to use voice and data services, or else that there is a lack of competition in the market." He continued, "It's less likely to be the lack of competition, because new operators can enter the market to offer more competitive services."

© ENN.

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