Hybrid Prepaid: The New Telecom Subscription Plan Paradigm

This included companies like Amazon, Dollar Shave Club, Netflix, and Hello Fresh, whose business models depend on capturing recurring and predictable revenues from its customers. Subscription business models have made much of that possible. Customers like it because it is simple to understand, costs less than having to visit brick and mortar business locations, and is customized to them.

As the Subscription E-commerce Global Market Report 2022 shows, the subscription business model continues to see growth potential.  The global e-commerce market is expected to grow 64.64% to $120.04 billion in 2022 and to $904 billion by 2026.

Subscription offerings include service subscriptions, subscription boxes, and digital content subscriptions among others. Telecom industry trends show operators are looking to tap into this growth by starting to dip their toes into service subscription offerings, in the form of the “Hybrid Prepaid” service plan, to leverage this trend.
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What is Hybrid Prepaid?  

 It is a telecom subscription service model where customers pay in advance for a recurring service plan where each service element has a set balance.  If the customer goes over that limit, they may then choose to purchase additional units or just wait for the next month to kick off.

Telecom Operators in Europe are increasingly adopting hybrid prepaid plans in their service offerings.  Italy, a classic prepaid plan market, has made hybrid their standard. In the U.K. all operators are offering fixed price packages.  Meanwhile, other countries are still stuck in a prepaid vs postpaid only model, having yet to offer hybrid packages.  Operators in those countries may see opportunity in adding a hybrid option.

Why would an operator choose to devise a hybrid prepaid subscription offering for their customers?  To understand that we need to dive into the various plans available to operators and their customers.

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Basic Phone Service

Back when telephone carrier monopolies were widespread, they were the only live distance communication option available.  As such, the operator was able to lock in customers without having to focus on the telecom customer experience.

Customers received basic access (local landline phone calls – incoming or outgoing) for a minimal fee paid at month-end.  But that fee was only for the core service.  Out going long-distance calls, international calling, and 900 numbers cost extra.  Customers often were unprepared for these surprises as they were based on minutes not known in advance.

Similarly, unpublished government tariffs and other regulatory fees were heaped on too.  These often resulted in customer bills that were unpredictable, significantly higher than the basic monthly fee, and could lead to collection problems. Such issues negatively impacted key metrics like telecom ARPU and made it difficult to implement effective customer retention strategies.

For the operator desiring to lock in the customer, having a “set-it-and-forget-it” operation made this an effective model.  But the downside was customer defaults and bad debt. In the telecom world this postpaid, pay-as-you-go model has largely disappeared and has been replaced by other, more effective recurring revenue models.‍

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Classic Prepaid‍

This is the model most often chosen by younger customers, the budget-conscious, and those in low-income countries, where they often have limited funds and cannot afford to be over budget. There are still a few hidden fees like tariffs and possibly roaming charges, but risk is minimized because you can’t overspend what you’ve put into the account.

With this model the customer pays in advance – typically purchasing “minutes” or “data” based on what they can afford. Charges are applied to the available balance. When the balance hits zero the device is rendered inoperable.  So as the account gets reduced, the customer makes an additional payment to refill the account.

From an operator perspective this is an easy-to-use system that works well for individual consumers, but not so well for businesses that want the predictability and accountability of a monthly invoice, tied to a purchase order, with fixed amounts that can be easily budgeted for by the company.  The prepaid approach can reduce the telecom ARPU due to lack of add-on services and requiring a customer to take action to top-up funds when they get low.

Postpaid Bundle

This is the current gold standard of plans and is used in most high-income countries. There are higher budget plans with nearly everything included as well as “no frills” plans that cover basic cellular service, and everything in between.

The key differentiator of this approach is it is billed to the customer at the end of the month based on a contracted set of services – cellular minutes, texts, and GB of data. Or it can be unlimited amounts where everything is included and the customer doesn’t pay overages.

This plan type allows for customers to decide on the amount of their spend and customize their service choices, while not having to worry about replenishing each month.  They can still run into problems if they exceed their data allowance that will result in end-of-month surprises.

For the operator they get the benefits of locking in a customer. As long as the customer doesn’t get an unexpectedly high bill, more often than not they’ll continue on as a customer. This results in predictable long-term revenue for an operator and, with the bundling of additional advanced telecom services, or overages that cause a customer to upgrade to a higher priced plan, telecom ARPU is solid.

This model is used for all customer types including both small and large businesses.‍

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Hybrid Prepaid

That brings us to the Hybrid Prepaid model, the subscription style plan.

Like the postpaid bundled model, the customer can decide on a plan customized to their specific needs. They choose the allowances they want for a given service element – whether that’s calling, text or data.  But unlike the postpaid bundle, they pay upfront.

This model is a logical next step for a customer on a classic prepaid plan.  They get better control over the services they choose in their plan and control the amounts they want to have for each plan element.  This leads to a positive telecom customer experience where the customer feels they’re in control.  This is often the next step for the younger buyer as they get more comfortable with budgeting their monthly expenses and are increasingly willing to invest in more services.

This can also be a great way to show their commitment to a cause or align with a favorite brand.  And it fits with the service subscription they’re used to – from Xbox gaming subscriptions, to Netflix forTV/Movie content, and now to their on-the-go communications and content consumption.

For the operator this is a way to graduate pay-as-you-go customers toward a postpaid bundle model while capturing increased telecom ARPU versus the standard prepaid option. It is also a way to launch digital brand-focused plans that gain customer loyalty from the brand.

This plan, with the paying advance aspect, does not currently fit with most large B2B customers.  So, they will stay with the postpaid bundle option.

 
Final Comparison‍

After reviewing the four plan versions, why does it make sense for an operator to shift customers into a hybrid prepaid plan option?
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Hybrid Prepaid vs Postpaid Pay As You Go

· Upfront customer commitment limits bad debt and defaults due to fee and overage surprises

· The postpaid pay as you go model has largely been phased out
 

Hybrid Prepaid vs PrepaidPay As You Go

· Great for MNO digital brand targeted to younger consumers

· Higher ARPU through multiple balances and upsell opportunities

· Better customer experience keeps customers longer

 
Hybrid Prepaid vs Postpaid Bundles

· Postpaid bundles often best for older, higher income customers and B2B and can be the goal for operators

· Hybrid Prepaid is a good transition point between prepaid pay as you go and postpaid bundles as it still is a prepaid option that requires planning spend mostly in advance

· Hybrid prepaid can be launched easier to younger customers via a digital brand offering that appeals to this demographic

 
While each plan model can have an appropriate audience and operator use, the hybrid prepaid plan provides an opportunity to graduate younger customers to a higher ARPU model and better connect with a “digital generation” not committed to specific plan models.

NextSteps

As an operator or digital brand, are you progressing your customer up the value chain?  Are you interested in launching a digital brand-based hybrid prepaid plan but need a partner who can help you pull together the components needed for a successful launch?

triPica can help operators and brands launch a hybrid prepaid plan or other digital subscription service by providing the expertise and underlying infrastructure to make it happen.  With the most adaptable and fastest to implement BSS worldwide, and the ability to quickly deliver a fully digital customer experience, you can get a service up and running quickly without the bumps and bruises trying to go it alone.

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