Why do people choose prepaid mobile?

Today I was invited to lunch with Claire Milne, senior visiting fellow at the LSE and telecoms consultant.  Some years ago I completed a Masters in marketing.  Claire had found online my Masters thesis online entitled ‘The strange success of prepaid mobile phones’ and wanted to discuss it with me.  We spent a very pleasant lunchtime discussing the thesis’s topic: Why DO people choose prepaid mobile?

Marketing theory and common sense tells us that when choosing products, people opt for the best one, or rather the one that best meets their needs.

Yet when comparing prepaid mobile phone service with postpaid (billed) mobile phone service, the prepaid customer has to pay for calls in advance, has the inconvenience of running out of credit, typically pays more for a handset, and frequently has access to a narrower range of handsets or services than are available on postpaid plans.  Yet prepaid mobile took off like a rocket and was growing much faster than postpaid mobile. This apparent paradox was the subject of my thesis.

An Eircell Ready to Go topup voucher or Go card

An Eircell Ready to Go topup voucher or Go Card

To put the work in context, some facts.  I completed the thesis in 1999.  A couple of years previously I’d had the privilege of leading the service design team for the first prepaid mobile phone service in Ireland, and one of the more successful early prepaid mobile services in the world: Eircell’s ‘Ready to Go’ prepaid mobile service.  By 1999, mobile phone penetration across Western Europe was around 25%.

My methodology was straightforward: a literature review to identify hypotheses, followed by research among industry experts (using the Delphi methodology), and depth interviews with individual users.

The conclusions (remember this was 1999, and prepaid mobile was still new) were that the benefit of controlling spending was important.  The benefit of avoiding the pain of a bill loomed large (the concept of negative discounting, where a customer avoids the dread of a bill by paying in advance, is a particularly interesting concept).  For younger people less used to commitment, the benefit of no contract period was attractive. An incidental finding was that very few of the industry experts at the time seemed to have given the question much thought.

Claire has recently been researching this topic – she reports that within the intervening sixteen years, very little additional research has been carried out into customers’ motivations for choosing prepaid mobile service over billed plans.  Perhaps some enterprising student would like to carry out some research into the topic.  Apart from any other questions (of which there are many), it would be interesting to see how customers’ and experts’ views have changed over the intervening period.  Although prepaid mobile may have peaked, it is still here and remember, it is responsible for untold connecting millions of people to the world’s voice and data networks.  Surely we should learn a little more about why it is so popular?

The thesis can be downloaded here.

2 thoughts on “Why do people choose prepaid mobile?

  1. PJ

    Interesting and strikes a chord. Siblings and I have tried to persuade elderly mother to switch to subscription and save money but she refuses to do it. It’s been a massive inconvenience with people having to go buy credit for her (how she wanted things done; it’s all about control — and it’s all paradoxical when a subscription would cap the costs). I finally cracked and set up a top up arrangement but doing this with THREE was HELL. It advertises services it doesn’t offer (auto top up on a minimum balance level). It’s staff were unfamiliar with what’s on its own web site and generally incapable of dealing with anything outside their script (more true for those in India than Eastern Europe).

    I use prepaid in several countries I visit periodically, for precisely that reason. I was disgusted to find that the carriers in the UK now help themselves to any unspent money after 90 days.

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