Wireless companies reach out to the teenage market

The new focus has revamped the image of prepaid phones.
KNIGHT RIDDER NEWSPAPERS
ST. PAUL, Minn. -- Kristen Moe, age 16, is savoring her prepaid cell phone and the envy of her peers.
"It's a really cool phone," said the Eden Prairie teenager. "All my friends admire it because it slides and stuff."
Her Virgin Mobile "MTV Edition" phone slides open instead of flips. It lets Moe download MTV-only ring tones, including a song from rap artist 50 Cent. And she sometimes uses it to surreptitiously play games or send text messages to her friends during class. "Everyone's doing it," she said.
The fact that it's a prepaid phone, meaning she pays for her minutes upfront instead of waiting for a bill, is cool as well. "I think the prepaid way is nicer because you don't have to deal with the whole billing thing," she said.
More than 150 million Americans tote a cell phone, and if you think that's a lot, just wait. The wireless phone industry is now trying to sell service to people like Kristen, once dismissed as lousy customers -- free-wheeling but credit-challenged young people.
Catering to teens
Companies are even branding themselves with Kristen's generation in mind. Virgin Mobile, FreeUp, GoPhone and Boost Mobile are offering prepaid phones tied to popular musical artists or youth-oriented events like hip-hop concerts, surfing and skateboarding.
They know young people have no patience for long-winded explanations of the mind-numbing variations of cell phone plans, so they're making these phones as easy to buy as grabbing a pair of cheap sunglasses off a rack.
"With Boost, they walk by, and bing, bang, bong, they're done," said Audrey Schaefer, spokeswoman for Nextel Communications, which formed Boost Mobile in a partnership with an Australian wireless company of the same name.
Unlike most cell phone plans, these services don't require a credit check or lock a person into a contract for at least a year with regular monthly payments.
Prepaid phones
Instead, wireless companies have turned to their ugly stepchildren, prepaid phones, and given them Cinderella-style makeovers -- if Cinderella watched a lot of MTV, gyrated to hip-hop and sported tattoos.
With prepaid phones, customers don't pay a monthly fee or sign up for a plan. They simply buy the phone, load it with minutes, usually in batches of $20 to $100, and start dialing. When the minutes run out, they buy more. Prepaid cards, often sold at convenience stores, let them buy the minutes and load them by entering a PIN number. Increasingly, though, wireless companies are setting up online Web sites for customers to use with a credit card.
Old prepaid plans failed miserably, noted senior wireless industry analyst Adam Guy of the Yankee Group, a technology research firm based in Boston.
Carriers offered a limited selection of clunky, obsolete models, sold them full price and charged a lot per minute to boot. Carriers still lost money because the activation cards were easy to shoplift, and customers didn't stick around long enough for the company to recoup its investment, Guy said.
New plans
Newer prepaid plans, however, sell phones for under $50, and some offer the same top models costing as much as $200 as in their postpaid plans. A few feature exclusives, such as Virgin's MTV edition or Boost's Roxy model, which is tied to the surf-lifestyle brand popular with some teen girls.
Per-minute prices have dropped to as low as 10 cents a minute under certain conditions, Guy said, and the ability to activate and pay for service online has cut fraud.
"Prepaid is no longer a dirty word," he said.
The emphasis on prepaid phones reflects a maturing cell phone market. More than half of all U.S. residents already own a cell phone, and the traditional "postpaid" (or monthly billing) market is reaching saturation, Guy said.
Guy estimates that the number of users for prepaid and new "hybrid" services, which combine popular postpaid features such as credit card payment, will nearly double by 2007.
New prepaid users could generate $6.3 billion in additional revenue to the total wireless market between 2003 and 2006 "if carriers are successful in implementing their prepaid offers to teenagers and poor-credit users," according to researchers at Morgan Stanley Equity Research.