Should I force my prepaid clients to migrate to postpaid?

Last week, we were meeting and introducing our company to the VP responsible for the residential unit in a major pan European mobile and fixed operator in Eastern Europe.  Apart from the personal fit we felt after meeting this guy and understanding the complex situation they have in the market, I liked the approach and management style of this exMcKinsey executive.

Several different questions were raised (and answered) through the meeting, but there was one that I would like to point out as it remarks something that is not well understood by some of our consultants (with which we had a constructive discussion wrapping-up the session afterwards) and therefore I think might be interesting to explain my view to the readers.

The question was extremely simple: Should I force my prepaid base to migrate to postpaid plans?

Let’s remark that this telecom operator belongs to a near-to-mature market in central-eastern Europe, with high levels of mobile penetration, huge competitive landscape and a pre vs. post split of no less than 60% for the prepaid base without a subsidy culture implementation. Flat fees were recently launched in postpaid (with a significant success) and the wireless broadband service is unveiling as the top-hit service launched by this operator and it’s competitors.

Taken this in consideration, the question was relevant. In my opinion, the healthy postpaid base of the operator (eroding a little bit the revenue stream as a result of the flat-fees implementation, but still in a very good shape) was showing the path to follow: good ARPUs, long lifetimes, increasing MOUs, etc.

But, does this “supposed healthy environment” mean that all our prepaid customers should be forced to a one-way-only migration?  (and I say one-way because we have seen some examples of bad done migrations where as a result of the campaign the prepaid client was not only not migrating but churning and moving to a different provider).

The theory (and most of the benchmarks conducted by mmC in mature and emerging markets) says that the postpaid client consumes more than the prepaid, stays longer and returns a higher payback in the customer end-to-end cycle. But the practice tells me that there are also healthy prepaid consumers; clients comfortable in this billing choice and willing to spend their limited communications budget with controlled monthly recharges. So, in my opinion, we should revise the question and reword it to: Should I force my entire prepaid base to migrate to postpaid plans? Now the answer is “No”.

And here’s the point of confusion of my consultants. A prepaid client is not necessarily a bad client. Depending on the market, some operators prefer to have a wide set of prepaid consumers in the higher prepaid ARPU pyramid and lasting more than 5 years within the operation than low-end postpaid clients with cyclic expenditures and volatile behaviours.  The key question here is: do I know which part of my base would be making higher revenues if migrated to postpaid? And the answer to this question is “yes, if I am able to measure their customer life time value”.

In my opinion, before migrating any client from an initial status to a to-be objective, a deep value analysis should be conducted to segment the base accordingly to the value brought by these clients. If not, you will see cases of clients not understanding why are they obliged to switch without asking it (and deciding to leave) and cases of clients that think they can afford being postpaid (and churning some months after they realized how well they were in their previous status).

Net, net, don’t be obsessed to increase your postpaid base as the only way to improve the operation performance. Analyze in detail the performance of each of your clients (regardless the status) and measure the trade-off between the potential abandonment risk of migrating and the uptake in revenues you think you are going to make. You might find that you prefer to maintain some of your prepaid segments with no change at all.

I will post in the future some of the findings we obtained in a prepaid management project we conducted for a mobile operator in North Eastern Europe. The results were unexpected.

Best regards
CVA – Flying from Frankfurt to Khartoum