Saturday, February 21, 2009

Giving Up the Cellphone Contract
Published: NYT, February 20, 2009

The key message is that in recessionary times, simplifying your offering and taking cost out maybe the best approach to ensure growth. In this example, offerings are being created that unbundle typical mobile phone packages to offering just basic services at lower cost and cost commitment via contracts. Customer segmentation is critical to know how to most effectively target and develop these new, downsized offerings.

Maybe Tony Soprano was onto something. As the lead mobster in the HBO series “The Sopranos,” he and his crew often turned to prepaid cellphones, presumably to avoid wiretaps.
But now these pay-as-you-go phones are winning over fans for different reasons — recession-battered consumers are buying them as a way to cut costs and avoid the lengthy contracts and occasional billing surprises that come with traditional cellphone plans.

“Frugal is the new chic,” said Joy Miller, 33, a piano teacher in Aubrey, Tex. After almost a decade on contract plans with Verizon Wireless, Mrs. Miller and her husband decided this month to test-drive a few prepaid plans, including MetroPCS. “In today’s economy, it’s not cool to pay $120 a month for a phone. It’s a waste of money.”

Although prepaid phones remain a fraction of the overall mobile phone market, sales of the category grew 13 percent in North America last year, nearly three times faster than traditional cellphone plans, according to Pali Research, an investment advisory firm. For the first time in its history, T-Mobile has been signing up more new prepaid customers than traditional ones. And Sprint Nextel is betting that a new flat-rate prepaid plan will help it wring more value from its struggling Nextel unit.

(The prepaid plans focus on basic calls, not the other features. It is critical to segment the user market to best understand how to target this downsized offering.)

Any stigma attached to the phones — they are a common prop in any show or movie about gangs and spies — is falling away as prices drop and the quality of the phones rises. Prepaid carriers like MetroPCS, Virgin Mobile and Sprint’s Boost Mobile division now offer sleeker handsets, better coverage and more options, from 10-cent-a-minute calling cards that customers refill as needed to $50-a-month, flat-rate plans for chatterboxes who want unlimited calling, Web browsing and text messaging.

The savings can be considerable. An AT&T customer with an Apple iPhone on a traditional plan pays at least $130 a month, excluding taxes and fees, for unlimited calls and Web use. Compared with the $50-a-month, all-inclusive prepaid plans, the iPhone owner pays nearly $1,000 more over the course of a year

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