Phone Plus Prepaid: Prepaid Changes Equation for Local Resale

By Khali Henderson

Posted: 3/2003

Prepaid Changes Equation for
Local Resale

By Khali Henderson

Prepayment
can change the entire business case for a local service reseller. CLECs can deal
with the skimpy 15-20 percent resale discount on ILEC services by targeting a
credit-challenged consumer with a premium service. UNE-P based CLECs stand to
make even more on average. The problem for these local service resellers is
figuring out where and under what circumstances they can offer UNE-P or resale
and achieve a workable margin.

"In many cases, UNE-P is going
to look much better. But in other areas and under certain usage assumptions,
resale is going to look better," says Carey Roesel, a consultant with
Technologies Management Inc. (TMI).

At a customer’s request, TMI has
modified its UNE-P margin analysis tool to help prepaid providers determine on a
customer-by-customer basis whether providing local service is more viable
through resale or UNE-P.

"We have an analysis [tool]
that identifies favorable UNE-P cost and ILEC retail rate combinations and
prepaid providers were looking at it and they said, ‘It looks really great, but
I don’t need all of the focus on ILEC retail rates. I just need to identify my
costs,’" Roesel says, noting this was no surprise because pricing for
prepaid customers generally is not based on ILEC rates.

TMI’s modeling system for prepaid
providers enables CLECs to input a customer’s NPA-NXX, usage patterns, and
service features into an Excel spreadsheet program to determine the UNE-P and
resale costs for providing service to that customer. A prepaid company can use
the TMI service as part of a decision-support program that determines at the
point of sale whether or not the company can provide service to a potential
customer at a profit.

"For any potential customer, I
can very quickly tell [using the model] if they would be more cost-effectively
served under UNE-P or under resale — or if I can or even should serve them at
all," says Roesel. Roesel explains, in the latter case, the company may
lose money or may not have agreements with the ILEC serving that customer.

"I can put in different
customer profiles and the UNE-P/resale margins will be all over the place,"
says Roesel. "Under one set of assumptions the customer looks like a great
candidate for UNE-P and then I plug in 3,500 minutes of local usage a month.
Well, now they are off the UNE-P track, but they still may be good candidates
for resale. Add a few calling features, and now we’re back to UNE-P. In some
cases customer location will be the dominant force driving the CLEC’s UNE-P/resale
decision."

As an example, Roesel cites
Marietta, Ga., where the cost to serve a typical residential customer under UNE-P
is about $25 — about $5 less than under resale. Go east about 60 miles to
Athens, Ga., and the typical residential customer will cost about $35 under UNE-P,
or about $10 more than under resale (see chart). Take these same
customers and move from two features up to five features, and UNE-P is the lower
cost option in both areas. Alternatively, if, instead of adding features, we
increase the local usage assumption, then resale is the lower cost option in
both areas.

"The bottom line is resale and
UNE-P are very dissimilar and so the [TMI] model is designed to demystify the
provisioning decision," Roesel says.

Source: Technologies Management Inc.