As suits the start of a new year, this month we’re ringing in the new. While that’s usually a good thing, the ‘new’ in question this time is a powerful new set of competitors now eyeing the prepaid market: the cable companies.

In our year-end wrap up last month, we looked at some of the technologies and business models for which 2007 signaled the end - or at least the beginning of the end. For example, legacy audio bridges and programmable overlay switches are all facing an end-of-life cycle that began in earnest in 2007.

The MSOs (or multi-service operators) have been leveraging IP to layer new services onto their networks for the last five years or so. From Video on Demand and advanced listings interfaces, to consumer-oriented telephony services, the MSOs have been upgrading and sharply expanding the usability and service spectrum of their broadband networks. Most large companies are delivering their own branded triple-play services through state-of-the-art networks, potentially reaching millions of residential and business customers across major cities and top markets. Now, cable executives tasked with telecom service and market expansion are beginning to look more closely at prepaid, both for consumers and for small businesses, as a new way to expand their offerings.

Initially, they are likely to define their consumer market opportunity as competing against free and flat rate VoIP international calling services, both to prevent attrition and to capture the opportunity. They could invest in differentiating, compelling new International calling capabilities to broaden their telecom product portfolio, integrate the new service with their existing core VoBB (Voice over Broad Band) services, and provide ANI integration for consumer ease and convenience.

This approach lets them better serve and leverage their installed base, particularly if they can sustain an economical, high-quality service by dynamically determining best routes and rates. They ultimately provide their incumbent base of home consumers (totaling millions of residential subscribers) with a convenient, competitively-priced array of customized International calling plans.

Clearly, the major cable companies face substantial challenges in entering the prepaid consumer services sector. Their sizeable and currently expanding overall market penetration and telecom services subscription rates mean that any new prepaid service would have to be immediately capable of processing comparably large numbers of calls, requiring some significant infrastructure investments. To set the service scale bar any lower would mean compromising the loyalty of their bread & butter, their installed base.

But there is also sound reasoning to support the cable companies’ entrance into prepaid. For one, the average cable telephony customer has already chosen their service based on cost considerations, so they’re probably eager for simple, economical long distance and international minutes. This is a great way for the MSOs to sell more minutes without cannibalizing their installed base.

So far, the cable companies have approached the residential side of the market and it appears that up to now, they’ve been mostly in target acquisition mode, without a big market push or sector specific services.

But that can quickly change; just as long distance is the consumer market driver, prepaid conferencing is a huge business market driver. Layering this service is a strong addition to VoBB business offerings, and one that helps small businesses control costs while sustaining big-business quality.

Layer on prepaid conferencing, and MSOs have the legitimate beginning of an excellent services suite for small to medium businesses.

Particularly because they’re price-sensitive, Small and Medium Businesses, SMBs, are ideal target customers for prepaid services. Calling codes prevent employee misuse of phone resources, and account metering methods can control specific minutes allotments by individual employees, enabling businesses to slash their long distance and international telephony charges, especially in comparison to now-standard ‘open line’ calling services which work – essentially – like an open faucet.

Will 2008 see the cables moving aggressively into the business market? For that matter, will more traditional prepaid service providers consider a similar lateral expansion into the SMB? It’s worth considering; prepaid service providers have the minutes available, the knowledge to control and appropriately price service quality, and the compelling potential value proposition of cutting SMB communications costs. SMBs have proven time and again that they will buy needed services as a box offering, through web channels or through non-traditional retail outlets.

So between prepaid service providers and the cable giants, it’s a good bet that in 2008 we’ll see some early creative marketing and outreach to SMBs, who are – as of now – an untapped customer base.



Ken Osowski is the VP of Marketing & Product Management at Pactolus Communications Software. He can be reached at keno@pactolus.com.