Whether or not the FCC winds up requiring wireless companies to alert customers about to get hit with overage charges, there’s one simple cost-effective way any cell-phone user can avoid fees for going over their data and minute limits. The solution—opting for a prepaid phone plan—is getting more and more popular everyday.
You’d think the concept of “prepaid”—money upfront, before services are even rendered—would get wireless companies all excited. Just the opposite is true. Wireless companies far prefer to sell products with cheap upfront prices, so long as the customers are guaranteed to stay on the hook for the long term. Whereas prepaid phones come with no strings or contracts attached and therefore the customer can jump ship to a competitor or just cancel the account at any point, the more typical cell-phone user signs a contract lasting one or two years and faces early termination fees (up to $350!) for bailing out.
But even though prepaid customers are far less lucrative to wireless companies, the big carriers are trying to push into the market because it is growing so rapidly, reports the WSJ:
Sprint Nextel Corp. is rolling out new brands and plans, including a partnership with Wal-Mart Stores Inc. announced Thursday that will charge seven cents per minute or text message—about half as much as TracFone Wireless, the largest U.S. prepaid provider.
Verizon Wireless, which had largely avoided the prepaid market, has opened its nationwide network to prepaid resellers. In the first quarter, Verizon accounted for nearly half of the industry’s prepaid subscriber additions.
Somewhere between 20% and 30% of all cell-phone users are prepaid customers, up from just 15% in 2007. Even with such growth, some providers are reluctant to get into the market—notably AT&T, which has shown no indication whatsoever that it’ll allow the iPhone to be used on a prepaid basis. That’s no shocker, considering that the average iPhone user pays $95 a month to AT&T, and the company obviously isn’t eager to allow those customers to opt out of their contracts:
AT&T Inc. offers a prepaid service under the GoPhone moniker, which has 5.4 million customers, but the iPhone carrier says it isn’t as interested in prepaid as its competitors.
Last quarter, AT&T saw a small uptick of 24,000 prepaid customers, only 1.3% of the total subscribers it added. “We’re not going to chase growth in prepaid that isn’t profitable,” says spokesman Mark Siegel.
Seems like if you’ve been in the business for a long time and you can’t make a rapidly growing portion of the market profitable, well then you’re not the most innovative company, now are you?
The Sprint phone mentioned above is given a fuller review in a recent WalletPop post, which is notably not only for its 7¢-a-minute rates, but also its unheard of practice of “Round Down” minutes:
“When you talk say for one minute and 46 seconds, most carriers round that up to two minutes when they are charging you by the minute, but we’ll round it down to a minute.” Neil Lindsay, CMO for Sprint Prepaid, told WalletPop in a phone interview, adding that the combination of a 7 cents a minute plan, 7 cents a text message and the Round Down feature make Common Cents a “very straightforward value.”
With these numbers, it should be equally obvious that infrequent callers and texters pay less with prepaid phones, and that frequent callers and texters could wind up paying a fortune with this kind of plan. 2,000 texts a month—which is somehow reasonable for a teenager nowadays—would cost $140 at 7¢ a pop. So you must know what kind of cell-phone customer you are before making any shift.
And what kind of user are you? Chances are you’re someone who uses a cell-phone for a lot more than calling folks up, reports the NY Times:
Although almost 90 percent of households in the United States now have a cellphone, the growth in voice minutes used by consumers has stagnated, according to government and industry data…
The number of text messages sent per user increased by nearly 50 percent nationwide last year, according to the CTIA, the wireless industry association. And for the first time in the United States, the amount of data in text, e-mail messages, streaming video, music and other services on mobile devices in 2009 surpassed the amount of voice data in cellphone calls, industry executives and analysts say.
Related:
Cell Phones: When Does It Make Sense to Drop the Contract and Switch to Prepaid?
Cheapest Prepaid-Cell-Phone Options: From $25 a Month for Unlimited Talk and Text