For many years wireless carriers viewed prepaid wireless service as the pariah of the telecommunications world, an outsider that was sometimes reluctantly recognized but never appreciated for its role in generating revenues from the lower end of the market. Recently, however, things have started to change, with even the larger wireless providers recognizing the growth potential in prepaid services, particularly in a mobile market where product saturation has almost reached 100 percent.
As evidence of the growing strength of the prepaid mobile market an event is happening later this month that I would guess many of us thought would never happen: the iPhone is slated for release on several smaller prepaid carriers. Cricket, a subsidiary of Leap Wireless, and Virgin Mobile both recently announced that their respective companies will be offering the iPhone on a prepaid package.
But the one draw back to prepaid service with the iPhone is in fact its greatest strength, the absence of a binding long term service contract. For larger companies locking customers into multi-year deals allows them to subsidize the iPhone up front, meaning that without such an agreement customers will have to foot the iPhone’s hefty bill up front, which begs the question, is it worth it?
There’s no question that consumers are drawn to prepaid service because of the freedom it offers. Low cost prepaid service providers like Cricket and Virgin are still able to offer extremely competitive prices and are some of the last bastions of the enviable unlimited data bundle (sort of). Of course all of that is made infinitely more desirable given the fact that customers have the option of jumping in and out of a service, and given all this you might be wondering why everyone doesn’t go the prepaid route.
Aside from the fact that traditionally device selection on prepaid carriers has been atrocious, there remains a distinct downside to all that contract freedom, particularly with the iPhone, in the form of increased costs up front, as Cricket, a subsidiary of Leap, is charging $400 for an 8GB iPhone 4S and $500 for the 16GB model. Both phones are available on Cricket’s $55 “unlimited” plan, provided of course that your notion of “unlimited” comports with Cricket’s fair usage policies (which here means about 2.3GB of data per month).
Virgin, for its part, isn’t even bothering with trying to offer a discount on either of the iPhones its set to release, offering the same two models at $549 and $649 respectively.
While I’m sure there are some of you wondering if such staggering upfront costs are worth it in the long run, the answer is unequivocally ‘yes.’ In a brief comparison, at Virgin Mobile, utilizing its low end $30 a month plan, the total cost over a two year period is $1,369. At Leap, with that company’s unlimited calling plan, the cost jumps to $1,869.99. Compare this, however, to either AT&T or Verizon, whose closest comparable contract plan would cost you $2,359.75 over that same two year term (they both do offer slightly more minutes than Virgin).
Although the savings are obvious, particularly for those who don’t talk a whole lot, the initial price of the iPhone will likely remain a barrier to its entry into the realm of prepaid service. The issue, you see, is that traditional prepaid subscribers tend to come from lower income brackets, often people who simply can’t afford a high end phone or a long term contract, meaning that while saving on the iPhone is nice, for many the money to purchase the phone outright simply isn’t there.
In the end, I think the success of the iPhone’s foray into the prepaid market will depend on who follows it there, meaning that if Cricket or Virgin are able to lure the traditional contract subscriber to the land of the prepaid this venture will likely be a success, no less because once people have shelled out hundreds of dollars to purchase their phone, they’re likely going to want to stay put and get their money’s worth.