Definitions

Post-paid mobile phone

Prepaid mobile phone

A prepaid mobile phone (pay-as-you-go or prepaid wireless) is a mobile phone for which service is purchased in advance of use. By purchasing credit to use on a mobile phone network, a user can access a mobile phone network without ongoing billing. Users can then use the mobile phone network until they run out of credit. The alternative billing method (and what is commonly referred to as a mobile phone contract) is the post-paid mobile phone, where a user enters into a long-term billing arrangement with a mobile network operator or carriage service provider (CSP).

Overview

A customer can add more credit to the pre-paid account at any time, known as "topping up" the account. This can either be a credit/debit card transaction with the provider (performed on the phone itself or via a third party such as a shop or ATM) or by purchasing a "top-up card" at retail. The top-up card is stamped with a unique code (often under a scratch-off panel) which can be redeemed on the phone for credit. Credit for a prepaid mobile phone may have a time limit, for example 90 days from the date the last credit was added. In these cases, customers who do not add more credit before expiration will lose their remaining balance, and their service (and its associated phone number) may be discontinued.

By 2003 the number of prepaid accounts grew past contract accounts, and by 2007, two thirds of all mobile phone accounts worldwide were prepaid accounts.

History

First US Patent on prepaid mobile phone

A provider of prepaid mobile phone was Banana Cellular, founded by Andrew Wise in 1993, which covered the provisioning of prepaid wireless services. Banana first sold prepaid mobile phone services in April 1993 in a small office located in Phoenix, Arizona. Customers were able to connect any other mobile phone on the prepaid network. Patent Number 5826185 filed November 16, 1994.

Hairpin Solution

The main issue that kept early prepaid models from becoming a primary product for a CSP was that the underlying products were "hairpin solutions" meaning that it took two extra dedicated trunks on the cellular switch to make one call, one for the inbound connection to the telephony platform and the second back to the switch to complete the call. Trunks were an expensive resource in a large metropolitan Mobile Telephone Exchange and switching equipment did not have the capacity that it has today, so prepaid was relegated to being the second choice for most US carriers.

SS7 Signalling

Current prepaid mobile phone solutions rely on out-of-band signalling (typically SS7) to set up the call. This happened after international standards for handling prepaid call types were developed.

First US prepaid mobile phone installation

Among the first, if not the first large metropolitan area implementation of prepaid mobile phone service in the United States was in the early 1990s at Houston Cellular Telephone Company, Houston, TX. HCTC was then an independent wireless carrier owned jointly by PacBell and BellSouth. HCTC introduced a service offering branded "calltrac" based on Voice Systems Technology, Inc.'s telephony platform with RPAC-2 billing during the first quarter of 1994.

HCTC initially offered prepaid mobile phone as a non-advertised alternative way to provide service to the more than 40% of cash-carrying, walk-in consumers who were being denied cellular service each day due to lack of credit. The plan was very expensive for the day, most subscription plans were double that of their postpaid subscribers and the prepaid subscriber still had to pay for their equipment (handsets) and anticipated call usage up front. HCTC used the Calltrack prepaid cellular program as a credit development vehicle until they developed subscriber reports intended to show that "Calltrack" was not a profitable venture.

The reports showed that a Calltrack prepaid subscriber was actually more profitable than their traditional postpaid subscribers by a huge margin. This was because, at that time it cost an average of 17% of their gross proceeds to collect on their bad debt postpaid subscribers, plus HCTC paid for all the postpaid handsets. HCTC was poised to become the first U.S carrier to go primarily prepaid, but it did not happen. Voice Systems Technology Inc. was sold to Boston Communications Group (BCGI) and the subsequent sale of prepaid cellular platforms in the US was immediately curtailed and the prepaid cellular service bureau was born. U.S Carriers spent several years trying to catch-up and develop their own solutions but patent litigation has kept prepaid from becoming the dominant form of payment.

The Contributors

The possibility of "prepaid wireless" in the United States actually came from Judge Green's decision to break up AT&T's monopoly. Prior the 1968 Carterfone decision, it was not even possible to connect non-Bell (Bell Labs or Western Electric) ancillary devices to the telecommunications network.

The first practical implementation of prepaid wireless originated in the United States from a small group of entrepreneurs at Voice Systems Technology, Inc. The first European PAYG deployment was in Portugal in 1995 when Portuguese operator TMN deployed a PAYG solution called MIMO .

Eircell

The concept was also developed by Eircell (then owned by incumbent Telecom Éireann) in the Republic of Ireland in 1997, as a method of letting different types of people (those under the age of 18, those without bank accounts and those without proof of identity) obtain a mobile phone. Originally limited to one TACS handset, costing £99 upfront, the system was an amazing success, despite the high price of calls and a 7p service charge on every operation. The system was branded as Ready To Go, a name still used by Vodafone, who now own Eircell.

A user would buy a phone, usually pre-loaded with some amount of credit, and would purchase extra credit when required. A call cannot be made unless the user has the amount required for that call's minimum charge.

The concept has since been copied in many other countries, with virtually every network in every European country supporting it. On many networks, such as Ireland's Meteor, pay-as-you-go is the main mode of operation, with pay monthly account phones being very much second-class. Conversely, in the United States, account phones offer the best features with pay as you go services being far more restricted in functionality. In developing countries pre-pay tariffs are chosen by the overwhelming majority of subscribers - in South Africa, for example, over 90% of users are on a pre-pay tariff.

Prepaid versus post-paid mobile services

Advantages of prepaid

May be lower cost for low usage - e.g. telephone for emergency use. ($30/year or less) Limited indebtedness - easier to control spending. Fewer contractual limitations - no early termination fee, freedom to change providers, plans, etc. May be available to those who do not have an address, phone number, credit card, etc.

Disadvantages of prepaid

Often, pay-as-you-go customers pay more for their calls and SMS messages, and are limited in what they can do with their phone - calls to international or premium rate numbers may be blocked, and they may not be able to roam. These limitations are often due to the complexity of managing the credit system for high price calls, or when users are not on their home network.

In the United Kingdom, operators have started raising the price of pay-as-you-go phones in an effort to attract users to contract plans (which tend to earn more money than prepay overall). This has resulted in an "ON/OFF" or "All or nothing" proposition for the prepaid service providers and their clients (i.e. the account has enough credit to use the phone, or it does not). Although Orange allow their pre-pay customers to use a further £2.50 of calls or texts when the customers credit has been completely used. This is then deducted when the customer next adds more credit.

United States: Solution to the "All or Nothing" problem

As described above, "prepaid" accounts require that a subscriber have credit in the account to use the phone. In the United States this is true for making outgoing calls and receiving incoming calls. The time most likely for a prepaid customer to switch to a different service provider is when the prepaid account reaches a "zero credit balance". Mobile service providers losing a mobile account call it "Churn".

A method developed (U.S. Patent 7,257,388) to make the prepaid subscriber account more "sticky" and reduce the risk of subscribers falling into the "churn chasm", is to provide limited functionality after a prepaid account reaches a zero balance. This is achieved by routing calls made to the prepaid subscriber to a temporary voicemail, that the subscriber can access on a true pay as you go basis (i.e. the subscriber only pays to access the messages). The subscriber may then access the temporary voicemail by way of a toll call, or a single use prepaid calling card. The subscriber does not have the minimum amount necessary to top up the mobile account to restore it to full functionality, but will still pay to access important messages. Since the voicemail is temporary, the subscriber maintains an incentive to top up mobile.

By making the prepaid account more sticky, the service provider reduces churn and earns revenue for allowing paid access to voicemail. The subscriber can access important messages for a limited time, thereby reducing the "All or Nothing" problem found in most prepaid services offerings.

Prepaid Mobile Phone and Roaming

In the early years, roaming often would only work within a CSP's (MNO's) own network. Roaming on other CSP's networks was generally not permitted. The reason was that a CSP has no way to bill calls in real time. There needs to be a mechanism to bill calls, SMS (text) and data use to the account holder's home network. The mechanisms used to allow roaming are various. However, most prepaid cards worldwide now offer roaming in one form or another, though some still do not, such as T-Mobile USA.

One method is for the prepaid mobile phone users to dial a "trigger" number from the foreign location. Then a customer's original CSP will then return the call. When the service calls back you are being charged for the cost of the service calling you back. The service will then allow you to enter the roaming number of the party you wish to contact. The disadvantage of this method of roaming is that you will not be able to dial numbers directly from your handset.

Another method employed by some operators to complete roaming calls is to dial a sequence of numbers including access digits to access the home service followed by the roaming number that is desired. This method of roaming also will not allow direct dialling from the handset.

A third method, which is increasingly common, uses a technology referred to as CAMEL (Customized Application of Mobile Enhanced Logic) which allows immediate billing for the home network. This method of roaming is the most transparent to the mobile user since the subscriber can direct dial all calls, as in the home country, without any sort of "callback" scheme.

Privacy rights and prepaid mobile phones

A concern of police and security agencies world wide is that prepaid mobile services allow the user to be anonymous and therefore facilitate criminal or terrorist activities. As prepaid service is not so much sold as re-sold in bulk in the form of sealed cards, there is no technological means to determine the identity of a prepaid phone user.

It has been suggested that the solution to this problem is to register the users of prepaid mobile phones. Such legislation faces heavy opposition from providers and consumers of prepaid service, as many consumers who desire privacy for legitimate purposes or simply by personal preference find anonymity to be the primary selling point of prepaid phones. Currently, according to a 2005 study 9 of 24 surveyed OECD countries require prepaid mobile users to register. These countries are Australia, France, Germany, Hungary, Japan, Norway, Slovak Republic, South Africa and Switzerland.

While there is no doubt that criminals and terrorists use telecommunication services, however to date there has been no public study that has clearly examined the link of non-registration of prepaid mobile phones to greater risk of criminal or terrorist activities. However mandatory registration may be a breach of a prepaid user privacy and currently the question various jurisdictions have decided on or are examining is whether this privacy breach is an appropriate action versus the threat that anonymous usage of prepaid services pose.

Prepaid Mobile Phone Branding Across the Globe

In an effort to differentiate the prepaid from post-paid service for their customers, CSP's have "branded" prepaid services differently from the post-paid services. The following is a list of these brands and the carriage service provider they are associated with.

Europe

  • Ready To Go.(Eircell, now Vodafone Ireland),
  • MIMO (TMN)
  • Speakeasy (O2-IE)
  • Pay&Go (O2-UK)
  • Pay as you Talk (Vodafone UK)
  • Threepay 3
  • Pay-as-you-go (Meteor IE, Orange UK, T-Mobile UK, etc.)
  • Carte Bouygues Telecom (Bouygues Telecom)
  • Mobicarte (Orange F)
  • SFR La Carte (SFR)
  • Xtra (T-Mobile, Germany)
  • Salamïa TELE2 Mobile (TELE2)
  • Orange POP, Orange Go, Orange Music na kartę (PTK Centertel, Poland)
  • Simplus (Polkomtel, Poland)
  • Tak Tak (PTC, Poland)
  • Play Karta (P4, Poland)
  • Sami Swoi (Polkomtel, Poland)
  • Heyah (PTC, Poland)
  • WPmobi (MVNO, Poland)
  • myAvon (MVNO, Poland)
  • Free2Go (Wind, Greece)
  • Cosmoκάρτα/What's Up/Frog (Cosmote, Greece)
  • A la carte/CU (Vodafone Greece)
  • Prima (Orange Slovensko)

North America

Satellite networks

References

External links

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