Pursuing the Prepaid Phone Option

by Matt Klassen on October 31, 2012

Looking at the shelves at the local big box retailer, it continues to drive home the reality that the wireless industry is undergoing a paradigm shift, away from the lucrative post-paid contracts towards the more flexible prepaid options. In fact, one needs only to look at the quarterly subscription numbers for most of America’s top wireless carriers to see that contract subscriptions are down, while prepaid subscribers are steadily on the rise.

While certainly not as financially lucrative as its unpopular contract cousins, in a market that is almost completely saturated with such post-paid options, it’s clear that the prepaid option is the only frontier of growth left available. In fact, as prepaid carriers like T-Mobile, Virgin, or Sprint are able to offer better and better phones without a contract, subscribers are finding it a much better deal, as it lets them control how much they spend on their mobile lifestyle while still giving them the phone they want.

But just how good a deal is it? As wireless carriers desperately try to figure out a way to eek out sustainable growth in a growing prepaid world, here’s a quick look at whether or not the prepaid option is right for you.

First of all, let me say that for those hoping to escape the clutches of the large wireless carriers by taking the prepaid route, don’t be so quick to jump at the first affordable deal you see on television. The fact is, on both sides of the border the large wireless carriers have setup of prepaid options of their own, subsidiary companies tasked with reaching what has often been considered the lower end of the market. While not every prepaid company is a minion of the big wireless players, if this is something that appeals to you, do your homework before signing up.

That said, given the general aversion large wireless companies still have towards the prepaid wireless market, it’s a good bet in my mind that there are many distinct advantages. For me, the key advantage of prepaid is the flexibility it affords. There are no cancellation fees, no regular monthly bills, no credit checks, and no carrier loyalty required. Prepaid customers are able to choose how much money they spend for mobile usage, and can cancel or change carriers at any time. In a contract-laden mobile world, it’s a whole new kind of freedom.

However, there are distinct downsides to prepaid option, the chief among which is the absence of carrier subsidies. When a carrier sells a postpaid—contract—phone its able to give customers heavy subsidies up front, as the carrier is able to initially lower the cost of the phone knowing it will recoup that money over the life of the contract. Without any guarantee of recouping those subsidies with a prepaid service agreement, carriers generally charge customers the full price of the phone, and for some that means a lot.

For example, most carriers offer the new iPhone 5 on a two or three year plan for around $199, but the actual cost of the cheapest iPhone 5 model is $649. Sure carriers will sell you the unsubsidized iPhone 5 and let you go the prepaid route, but that’s a stiff price to pay for many up front. Moreover, if you’re currently in a contract and looking to pursue a prepaid option, beware the heavy cancellation fees; they often make any savings negligible.

That said, for most light to moderate mobile users, prepaid really is the way to go. While generally the cost of each call or text is higher and some of the really high end phones might be too expensive, overall a prepaid customer’s monthly bill is lower (particularly when factored over the life of a traditional contract), and with the flexibility of choosing your carrier, is there any reason to sign a mobile contract ever again?
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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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