Wireless providers renewing push on pay-as-you-go

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Canada's maturing wireless market is prompting some carriers to modernize their pay-as-you-go services, as younger customers increasingly fuel subscriber growth.

Carriers including Telus Corp. predict that prepaid will play a key role in the industry's next wave of growth, although the prepaid market has contracted in recent years as more consumers opt for subsidized smartphones on postpaid plans that allow them to pay their bills at the end of the month.

Already the rise of cheaper smartphones, such as Android-based devices, coupled with flattening growth of more lucrative postpaid customers have helped to spark a resurgence of that budget-conscious category in the United States.

Canadian carriers are also expected to grapple with a shrinking supply of new mobile users for their top-end services over the coming years. There are already more than 27.4 million wireless subscribers across the country and the wireless penetration rate is expected to reach 100 per cent in less than three years.

Against that backdrop, carriers are sharpening their focus on teens and tweens as a source of untapped growth. In doing so, some are revamping their prepaid offers to provide those first-time users with a gateway to wireless services – especially now that it has become commonplace for kids as young as 11 to carry a cellphone.

"As the Canadian wireless market matures, the people who really needed a phone already have one," said Brent Johnston, vice-president of mobility solutions at Telus Corp. "Increasingly, the next wave of adopters will be prepaid."

That assessment, however, stands in sharp contrast to one recently offered by wireless newcomer Wind Mobile. In June, chief executive officer Anthony Lacavera declared the prepaid market "doomed" and announced that Wind had changed its business plan to squarely focus on acquiring new postpaid customers who generate fatter revenues.

At last count, roughly 78.2 per cent of Canadian households were using mobile phone services, while prepaid users accounted for about 22 per cent of wireless subscribers, according to the latest data from the Canadian Radio-television and Telecommunications Commission.

"I don't believe that prepaid is dead," said Mr. Johnston of Telus. He noted that countries that have already achieved higher levels of wireless adoption, such as the United States, also have a higher proportion of prepaid users than Canada.

Although there are some differences between the Canadian and U.S. markets, such as the economy and the overall creditworthiness of consumers, he argues that the Canadian prepaid segment is also poised for some expansion.

As a result, the Vancouver-based telco began offering a prepaid service on its Koodo brand for the first time in August – more than four years after it launched that flanker brand. Although it had already been offering a pay-as-you-go product on its premium Telus brand, its new Koodo offer is largely geared toward teens.

"We did see a need," said Kevin Banderk, who heads up the division and whose title is chief Koodo officer. "We have lots of customers who would come up to our shops. … Sometimes we couldn't offer them postpaid based on their credit, lack of ID or even their age, if they're under 18."

Parents, meanwhile, are eager to find plans that give them more "spending control" over voice and data charges as they arm their kids with entry-level smartphones. Although it is "relatively common" for kids to get their first cellphones at ages 11 or 12, "every year it seems to get a little younger," Mr. Banderk said.

In "extreme cases," first-time users can be as young as 8 or 9, he said. "The younger kids are all over the smartphones and it is one of the reasons some parents are really attracted to prepaid."

Other carriers are also making moves to attract and retain young subscribers. Rogers Communications Inc. has introduced small data buckets on its Chatr brand, which competes aggressively in the prepaid market.

Public Mobile Inc., meanwhile, recently added a new music service that gives customers unlimited access to a large music catalogue as long as they keep their phones active by paying their upfront monthly fee.

"There is room to grow that particularly [because] the people who are currently excluded from the wireless market tend to be much more favourable to the prepaid side," said Bruce Kirby, vice-president of strategy and business development at Public Mobile.

Stewart Lyons, president of Mobilicity, said the pay-as-you-go revival is gaining steam in the United States because prepaid carriers there, like MetroPCS, are larger and have been in operation longer than their Canadian peers.

Still, he too is optimistic the trend will take root in Canada – especially since the CRTC is creating a wireless code to clarify contract language and termination fees – a development he hopes will encourage consumers to take another look at prepaid options.

"You can count on one hand the number of trends in the United States that haven't made their way to Canada," he said.