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AT&T Tries Prepaid Without Pain

5/19/2003 02:00:00 AM Eastern

AT&T Wireless' new GoPhone prepaid service, available in more than 10,000 storefronts, departs significantly from other prepaid programs by offering airtime at near-post-paid prices, depending on the plan chosen, and unlimited night and weekend use with most plans.

The program will appeal to tens of millions of potential subscribers in two underpenetrated segments to further drive penetration in a mature market, said chief marketing officer Mike Sievert. One segment consists of credit-challenged consumers, and the other is the convenience-seeking customer who shuns complex rate plans and annual contracts.

In 2002, AT&T turned down 4 million applicants for post-paid service because of their credit rating, or almost half the carrier's total applicants, he said.

Minutes included in four rate plans from $19.99 to $49.99 are priced effectively at 9 cents, 10 cents, 20 cents and 25 cents per minute, including long-distance and on-network roaming charges. Other carriers' prepaid prices average 25 cents, and "our biggest bucket plan is about 9 cents per minute, only a couple cents over the industry-average post-paid [rate]," said Sievert. Roaming onto non-AT&T GSM networks costs 25 cents/minute and is deducted automatically from a subscriber's prepaid balance. Data-service prices are also extra.

To get voice charges so low, AT&T reduced its cost structure and its bad-debt exposure, in large part by automatically deducting a monthly fee from a subscriber's credit or debit card or by automatically deducting the funds electronically from a subscriber's checking account. "About 85 percent of households have one of these three forms of payment," said Sievert.

"Traditional cash-only prepaid," he noted, is "manual cash-transaction intensive."

Streamlined payment collection also delivers another cost advantage, he said. It's expected to reduce churn compared to traditional prepaid programs, whose subscribers must actively replenish their accounts to continue service.

Cash-only prepaid programs, Sievert added "are only marginally profitable to the industry."

AT&T reduces its acquisition costs in at least one other way. Unlike other prepaid programs, he said, "In no case do we sell the [$89.99-suggested Nokia 3590 GSM/GPRS] handset below our cost."

As with other prepaid programs, indirect retailers are compensated less than they are with post-paid programs because "grab-and-go" prepaid programs don't require a long sales cycle, assistance in choosing a rate plan and in-store activation, Sievert noted.

To big-box retailers who aren't likely to transship the handset to other 1,900MHz GSM countries, AT&T wholesales the phone at a break-even price so the dealer can make a margin at $89.99. No activation commission is involved. For smaller dealers, the wholesale price is more than $89.99, but the dealer gets a rebate when the consumer activates. AT&T expects most purchasers to activate it.

Phone features include Java, xHTML browser and MMS. They're available through Advantage Wireless, AT&T Wireless stores, Circle K, CompUSA, Fry's, Ritz Camera, Staples, Target, Tweeter, Ultimate Electronics, Wireless Retail and 7-Eleven.

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