Brazilian cellphone operators are seeking to boost value-added service sales to prepaid customers as a means of reversing the recent decline in revenues.

"With competition fierce for the small postpaid segment, the operators are now looking to squeeze the prepaid base," said Luciana Leocadio, telecom analyst at the Ativa brokerage in Rio de Janeiro.

Traditionally, players such as Vivo Participacoes (VIV), TIM Participacoes (TSU) and Claro, the local unit of America Movil (AMX), focused little on how often their prepaid clients sent texts, as the real money was to be made in postpaid phones with a richer clientele.

But while cellphone ownership has doubled in the last four years to reach 158 million users in May, only 18% of those users have postpaid contracts, according to figures released by government regulator Anatel.

That has led to intense competition for a select group of clients, contributing to a decline in average revenues.

Average revenue per user, or Arpu, for the four largest operators dropped to 25.10 Brazilian reals ($12.72) per month from BRL27.50 in the first quarter of 2008, according to a survey by the Teleco consulting group.

As a result, operators are now taking another look at their vast prepaid base and trying to sell text packages, downloads and internet services to the higher income customers within that sphere.

"When you see that over 80% of Brazilian cellphone lines are prepaid, it is obvious that use isn't restricted to lower income families and some of these clients have elevated spending power," said Leocadio.

TIM, the Brazilian unit of Telecom Italia S.A. (TI), was one of the first companies to renew its focus on this segment, offering high-speed internet services to prepaid clients.

Meanwhile, Vivo, which is jointly owned by Spain's Telefonica (TEF) and Portugal Telecom (PT), is offering special deals on texting and other value-added services as a means of increasing revenues.

"Texting is one area where Brazil is light years behind other parts of Latin America and the rest of the world. Brazilian text traffic is a fraction of that in other parts of the world," said Eduardo Tude, an analyst at Teleco.

Brazilian operators courted prepaid clients in the first half of the decade, despite lower Arpus, as they sought to create client loyalty in a young market.

However, the continued heavy sales, despite lower incentives, have made it clear that many of the new lines are second lines used for a variety of ends.

"As data transfer becomes more important to the cellphone industry in the coming years, operators have to develop this channel," said Tude.

Cellphone operators are in the middle of erecting their 3G networks, collectively spending more than BRL10 billion this year.

-By Alastair Stewart, Dow Jones Newswires; 5511 2847-4520; alastair.stewart@dowjones.com