A beginner's guide to more telecom jargon

In part 2 of the guide, CNET explains the difference between postpaid and prepaid, and why M2M isn't some new chocolate candy.

The mobile world moves at a breakneck pace, and it's difficult to keep up--even without the technical jargon most industry insiders throw around. And they do love to toss those terms about.

Earlier this month, I explained the nuances between the different 4G technologies and why you don't want companies cramming you. With the carriers posting their quarterly earnings results recently, I figured it would be a good chance to provide you with a refresher course on telecom jargon that industry executive and Wall Street types like to use.

Verizon says it added 1.3 million net postpaid subscribers in the second quarter. A major driver? iPhones.

So for some light reading, here are few terms telecom experts throw around with the assumption that everyone understands.

Postpaid: Industry jargon for a customer who signs a long-term service contract. Postpaid customers are seen as the most desirable because they tend to stay with carriers longer, often spend more each month, and go through credit checks and are typically more financially secure.

That's why carriers will entice you by offering subsidies, allowing that iPhone you covet so much to retail for $199.99, instead of the off-contract price of $649.99. It's also why companies have raised their early-termination fees--it's another way to keep you on their service in exchange for the subsidy you enjoyed.

Postpaid used to be the measuring stick carriers would use to compare their respective performances. On Thursday, AT&T said it added 331,000 such customers in the second quarter, though it argues that excluding the impact of the integration of two recently acquired wireless assets, and the generous addition of tablets, its total is more like a net 765,000. Verizon said Friday that it added 1.3 million net postpaid subscribers.

The importance of postpaid, however, has diminished with the growth of different segments, which brings us to...

Prepaid: If postpaid was the favorite son, prepaid was considered the black sheep of the family. For a long time, prepaid was considered an option for people with low income or poor credit. Carriers such as Verizon Wireless still barely pay attention to it.

But the financial crisis and saturation in the postpaid market changed a lot of the carriers' minds, and it's become the hot area of growth. With these uncertain times, people are less willing to commit to a two-year contract, even if that means foregoing the latest and greatest smartphone.

Even the concept of prepaid has changed over the past few years. You used to pay in advance for a bucket of voice minutes, so the rates varied depending on how prolific you were on the phone. That meant you could go months without a phone bill if you were feeling particularly antisocial.

New plans, however, mimic postpaid models in that you pay a set rate for a bucket of minutes, or in many cases, access to unlimited phone and text message services. As such, the definition has blurred. For instance, T-Mobile recently lowered the rate of its smartphone plans, and also offers a no-contract option, which could arguably be called prepaid or postpaid.

ARPU: An acronym for average revenue per user. It's another term that telecom executives and investors love to throw around, since it represents how much you as an individual are paying on your phone bill each month.

The ARPU dynamic has been pretty similar for the past few years: the voice part of the revenue has been going down, while the data and text message side has been going up. Carriers used to count on little extras such as ringtones and wallpapers for additional revenue, but those were sillier times. The bean counters at the carriers are hard at work ensuring that the data side is rising faster than the voice decline.

There's another new wrinkle in the direction of ARPU. The introduction of new devices such as tablets and MiFi cards means products that generate lower revenue; it doesn't have the virtue of getting both voice and data revenue.

With those devices bringing the average down, ARPU has been slower to grow in recent quarters, despite the profitable nature of these devices. It's an issue that AT&T and Verizon tried to explain to Wall Street, who have their own expectations for where ARPU should be going.

Verizon Wireless opened a new facility in Waltham, Mass., to work with partners to develop new products for 4G LTE products and services. Verizon Wireless

Connected device: Also known as an emerging device, it consists of anything that's not a cell phone but has a cellular connection. The most high-profile example is Amazon.com's Kindle, which uses either Sprint Nextel or AT&T's network to grab new digital books over the air.

AT&T has been the most aggressive in championing the business, and have cellular connections on everything from digital picture frames to medicine pill bottles and dog collars.

These devices are one of the main contributors to the lower ARPU dilemma. Some may generate $2 or $3 a month, and are highly profitable, but drag down the average. That said, both AT&T and Verizon have over the past few quarters begun to specifically talk about this part of the business.

M2M: The term stands for machine-to-machine, and like connected devices, represents different devices with a cellular connection. M2M, however, specifically refers to non-consumer-centric devices, such as a power-grid management system, or automated teller machine.

Verizon Wireless earlier this month opened an innovation center to spur the development of M2M and connected devices for its 4G LTE network. AT&T opened its own center in February, the first of three.

 

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