We’re addicted to our smartphones, and the cellular industry knows it. The big players in the business are charging an arm and a leg – and another leg – for cellphone plans, and they’re even ensuring that unlimited texting and voice comes standard on postpaid plans (Check out Verizon’s Share Everything plans) because both features are becoming less relevant with today’s tech (consider iMessage on the iPhone). The budget-conscious among us are looking for alternatives, and with unemployment still lingering at sky-high levels, prepaid plans are starting to find their market.
What’s Prepaid?
Today’s prepaid plans are typically lower-priced than postpaid plans – the factor that attracts most to this soon-to-be-popular alternative. As evidenced by the comments on a recent article, people who are serious about saving money on their cellphone bill switch to prepaid.
Prepaid is just what it sounds like: you pay for your cellphone service before you receive it. Postpaid, in contrast, has you pay for service after you’ve received it.
Companies like AT&T are realizing that prepaid customers are looking for the most bang for their buck, and are starting to offer some great deals on prepaid (but notice how difficult it is to find prepaid on their website). By no means, these plans are not displayed front and center, but they do exist.
Many prepaid plans include voice, text, and data for between $30 and $50 per line. You’d be lucky to find a postpaid plan with similar features for under $70. Why is this the case?
Postpaid Plans Add Subsidies on Smartphones
The main reason you’ll pay more on postpaid plans than on prepaid plans is because so many postpaid plans offer phones for less money. The cellphone company will actually eat some of the cost of phones they sell in order to get you on a higher rate plan – and they need you to pay for your phone discount over time. For those who can’t cough up $400 or more for a smartphone, postpaid plans make up for the savings on smartphones by charging them more on a monthly basis.
The problem with this is that many customers don’t upgrade (or change phones) every two years, so the higher monthly bill ends up taking more money out of their wallets than is needed. This is where the big players in the cellular industry make a lot of money.
Why You Should Consider Prepaid
There are a number of reasons I believe prepaid smartphones will overtake the industry over the next few years and why you should give prepaid a look. Let’s start with some typical benefits:
- Lower monthly cost (as mentioned before)
- No gotcha cellphone fees you’d find on postpaid plans
- No contract (if you want to move to a different carrier, go ahead, but be prepared to possibly pay for a new compatible smartphone)
- No credit checks.
Virgin Mobile just announced a new plan for the iPhone 4 and iPhone 4S that only costs $30 per month (with a $5 discount when auto-pay is selected). It includes unlimited data (up to 2.5GB of high speed, lower speed after), unlimited texting, and 300 voice minutes. For those of us who do very little talking and a lot of data, this is a great deal. Sure, it’s on Sprint’s slow 3G network, but aren’t many of us on WiFi anyway?
Again, remember that prepaid plans don’t discount the cost of phones, so the iPhone 4S would cost you nearly $650 in this case. If you’re a saver though, this shouldn’t be a problem. Besides, you’ll make up the cost difference very quickly.
Why Prepaid Smartphones Will Rule
Customers like simplicity. Customers like straightforward pricing. Customers want freedom to pay for what they need without wasting extra money. That’s where prepaid comes in.
As the frugal community grows, so will the prepaid industry. I’m starting to believe that these plans will be mainstream in less than a decade. I could be wrong, but meanwhile, you should probably rethink your smartphone expenses – you’re probably paying too much money!
Agree? Disagree? Leave your thoughts in the comments below! I’ll meet you there – from my iOS WordPress app.
I think you are right that these will increasingly catch on and grow in popularity. For the consumer (or at least some consumers) it makes great sense. For the providers it gives them a means to derive more revenue from their older networks (I conclude that based on your note about the use of the older network technology used by Virgin Mobile).
The real key will be the availability of the most popular smart phones in pre-paid plans, but they will be more expensive.
For my family, I can’t get the math to work. I have 4 smart phones on my VZ plan. To move to a prepaid plan, it would cost me $2600 in upfront iPhone charges. I estimate that it would save me roughly $120/month. My payback would be roughly 21 months or almost 2 years. After 2 years, new phones are probably needed so I start the cycle over. Even with no contracts, I don’t think this is enough savings for me to shell out the initial $2600. The only way it works for me is if we keep our phones for 2.5+ years. Probably not a problem for some folks but two years is a long time for me and most of my family members.
You make some great points here Scott. People who can hold on to their phones for three or four years are more likely to benefit from prepaid plans.
Thanks Thad for your comments. I think we’ll see a lot of popular smartphones in the prepaid market soon. Virgin Mobile is getting the iPhone, so that might be a sign of things to come.