Prepaid Wireless, a Growing SMB Opportunity

By Tara Seals

Carriers, particularly competitive carriers, and their sales partners have a big opportunity in targeting small business owners looking to cut overhead as a way of dealing with recession-related pressure on their bottom lines. Pitching them on getting rid of  contract-based cell phone service in favor of much cheaper unlimited prepaid wireless plans is a growing way to snag new customers, according to small business expert Liz Franklin.

With unlimited minutes, text and Web access for as little as $45 to $60 a month from prepaid wireless offerings, a small business could save $250-$800 per year for each wireless phone that it either owns outright or subsidizes through reimbursed expenses, she says. That’s a big pot-sweetener for an operator looking to poach customers from the big 4, particularly since “prepaid” no longer equals “basic feature phone.”

“Prepaid wireless is rapidly becoming a no-brainer for small businesses: As the recession grinds on, small businesses are cutting away more and more overhead in order to keep their doors open,” she said. “With telecommunication costs being the third or fourth largest expense overall for a business, this is a big waste target for many small companies. And if you can save $250-$800 per wireless phone each year, why in the world wouldn’t you take a hard look at the prepaid option?”

She added: “And we haven’t even talked about billing errors, which occur in as many as 7 percent of phone bills!”

Just as small businesses are only now waking up to the cost-cutting potential offered by prepaid phones, so, too, are prepaid wireless companies starting to reach out to small businesses. Prepaid wireless phones are now much more advanced than they used to be including such phones as the Samsung R451C and the LG Rumor touchscreen and provide for full access to e-mail, business-style texting, the mobile Web, and so on. 

The bottom line here is that prepaid no longer means low-tech when it comes to phones,” said Allen Hepner, executive director at the New Millenium Research Council think tank. “One of the biggest raps on prepaid phone service was that the phones were behind the state-of-the-art handsets. Many consumers who were outside of the traditional prepaid consumer profile no doubt were put off by the notion of going backwards in cell phone technology in order to use a prepaid service. The good news for those consumers is that the prepaid industry is catching up and can now cater to their needs.”

Small/midsize companies spend on average $930 per month (that’s down– in 2009 it was $1,120 per month, indicating intensifying price competition). But also making it a lucrative segment to target is the fact that small and midsize business customers, often overlooked by larger operators, are more satisfied overall with their wireless services, and tend to be more loyal than, say, consumers or home-based business customers, primarily due to cost differences. That’s according to J.D. Power and Associates’ 2010 U.S. Business Wireless Satisfaction Study. The firm defines SMBs as companies with between two and 499 employees. Carriers shouldn’t just pitch price; these organizations value performance and reliability, the quality of the sales representatives selling them the plans, ease and accuracy of billing, efficient cost of service, offerings and promotions, and customer service, in that order.

“Clearly, the revenue potential among larger businesses dictates that wireless service providers are more aggressive in offering pricing discounts through sales promotions, such as volume-tiered pricing based on the number of employees participating,” said Kirk Parsons, senior director of wireless services for J.D. Power. “This could also include offering bundled products and services as a way to promote cost savings, given that from both revenue and customer loyalty perspectives, providers offering multiple services to meet client communication needs can almost immediately experience a positive financial impact.”

The 4th quarter of 2009 marked the first time that the number of new prepaid wireless customers in the U.S. outnumbered new contract-based cell phone providers, according to industry data from both Ovum/Datamonitor and IDG. New prepaid cell phone subscribers accounted for nearly two-thirds (65 percent) of the 4.2 million net subscribers added by U.S. phone carriers in the fourth quarter of 2009. One out of five cell phone subscribers in the United States are now using prepaid phones.

Based on the ongoing recession and the recent surge in attractive prepaid phone deals, that trend is expected to continue.

“The era of cell phone penny pinching is officially here,” said Jose Guzman, project coordinator for NMRC.  “Thanks to the recession, the U.S. cell phone marketplace continues to undergo fundamental changes that will just get bigger as the economic downturn deepens.”

Telecommunications analyst Mark Lowenstein, agrees. “Customers want greater flexibility in the relationship with their wireless operator,” he noted. Prepaid services have become more mainstream — available at attractive prices, and with a competitive array of devices and features. We’re also seeing the growth of various flexible pricing options with regards to data services.”