
Prepaid Cellphones Are Cheaper. Why Aren't They Popular? - hollerith
http://bits.blogs.nytimes.com/2012/08/02/prepaid-phone-plans/
======
cletus
Prepaid is an interesting beast. In most of the rest of the world, telcos
regard prepaid as a plague and only really offer it as a goteway to "postpay".
Postpaid customers are predictable future revenue.

In Australia, I was with Telstra, which has by far the best coverage. I was on
cotnract. The reason? For $50 a month I basically got (for me) unlimited
voice, text and Internet (2-3GB/month). but the 32GB iPhone 4 only cost me
$300 with $100 rebate. The handset outright cost $950 IIRC so for $1400 I got
the handset and 2 years of service. I don't think I could've gotten two years
of service for $450.

In the US I originally went with AT&T as they were the only GSM network that
supported the iPhone (T-Mobile could support it on Edge; Verizon and other
models came later). Coverage kinda sucks in NYC, really sucks in the Bay Area
but in most of the rest of the country is fine.

This was originally month-to-month but ultimately I figured I may as well get
the 4S on contract (the discounted price plus the ETF worked out to be no more
than the outright price anyway if I cancelled early).

But prepaid? That tends to relegate you to "inferior" networks in the US.
T-Mobile and Sprint can give good deals but have really patchy coverage.
MetroPCS, as far as I can tell, exists solely for drug dealers and pimps.

One difference is that in most of the rest of the world you don't pay to
receive calls. This makes having a phone and not using it much (to make calls)
much more viable. Also texting rates in the US are essentially extortionate.

Other countries (Australia and IIRC the UK at least) seem to more heavily
discount handsets. It seems like people most often buy the phone that is $0
upfront on whatever plan they want (or they bump their plan up to where it is
$0 upfront). The iPhone changed this dynamic somewhat whereas most people
seemed to view phones as interchangeable previously.

This article is right about one thing: people do seem to put too much
importance on the upfront cost. I see things like the latest gen iPhone is $99
upfront and the previous generation is $49. For $50 you get older hardware
that will be obsolete a year earlier... for something that'll probably cost
you up to $2000 (or more) over 2 years anyway.

~~~
joeguilmette
I use an iPhone with a prepaid SIM with AT&T. I pay 10¢ a minute for calls and
texts in addition to a $25/1gb data plan. I make my calls over VOIP with
Talkatone and use the Google Voice app for texting. I pay $25 a month.

It was really hard to get this set up. I had to literally fight with AT&T, cut
my own SIM, manually enter APN settings. When I have to purchase a new AT&T
SIM after traveling they tell me it's not possible, that I can't do it. I
explain that it is and I can, tell them how to set it up on their end.
Ridiculous.

They tell me the iPhone can't do prepaid (it can), that it isn't unlocked (it
is), that it won't work if it's jailbroken (it's not) and that all of my data
will magically disappear (it will if you don't configure up the APN settings).
They will say anything to steer you from prepaid.

Overseas in Southeast Asia you just walk in to a corner store, pay $2 for a
SIM, give him a few dollars to load it up and send a text to buy a data plan.
Vietnam was the cheapest, a couple bucks for gigs and gigs of mobile
broadband.

I will never buy a phone on contract. AT&T is a nightmare and the fact that
we're no longer married helps me rest easy.

~~~
merrick
Curious about the part where you put foreign non-AT&T sim cards in and it
works, without jail breaking?

~~~
blario
All 4S phones are unlocked if bought off contract (well the GSM ones anyway).

------
sheraz
I recently switched from contract to prepaid. Last year I took the plunge with
an Android smart phone. I was curious to know what internet in my pocket
really meant. My plan was a 5GB 4G plan with t-mobile.

I downloaded and compiled 1 year of usage into a spreadsheet. One year later
and the results are in.

* My monthly usage never went over 300MB. Most of the traffic was offloaded to local wi-fi between my office and home. * Average of 125 text messages per month * Average of 900 minutes (TOTAL) used per month

I was a little shocked to see the hard data. As it turns out, and I only speak
for myself, internet in my pocket did not mean very much. I could save a lot
more money by switching away from a smart phone and back into a trusty Nokia
3310.

Even after breaking the contract ($200 fee) I will be saving $70 per month
which offsets the penalty in 3 months.

I now have my Nokia 3310 with 1500 minutes and text for $35/month. Other
benefits include:

* charging the phone once a week * better reception * [sarcasm]texting and driving is way safer now (love t9)[/sarcasm]

edit: added sarcasm tags

~~~
suresk
Texting while driving is never safe. Please stop doing it.

~~~
ams6110
T9 is better than using those micro sized keyboards though.

------
zdw
Arstechnica had a recent article on this:
[http://arstechnica.com/business/2012/06/prepaid-mobile-
phone...](http://arstechnica.com/business/2012/06/prepaid-mobile-phone-users-
in-america-hit-record-high/)

I switched to Straight Talk on an iPhone 4 (AT&T GSM) right after my contract
expired, with basically no problems. I'm a light data user
(web/twitter/email/maps, no streaming music/video), so $45/month is a decent
bargain for "unlimited" everything.

Now, if there was only a decent prepaid data-only plan for tethering. What I
want is to buy a few gigs of transfer that doesn't expire (for at least a few
months) and is tied to a USB stick. Nobody appears to sell this.

~~~
CoffeeDregs
I'm in the US and just did the same. Got an unlocked Galaxy Nexus and a pre-
paid SIM from StraightTalk. $45 per month for all you can eat everything on
ATT's network... I'm really sorry that I didn't know about this before since
I've spent ~$100/month for the past 7 years with Verizon or ATT. I haven't
found any issues with the coverage either. Mobile phone consumers in the US
(at least, those I know) are really locked into the mentality of signing up
for contracts. I'm glad to have broken free of that mindset.

Also, I _do_ tether it for my daily train commute, but please don't tell them
that.

------
dasil003
I didn't realize how good prepaid could be until I started traveling
frequently to London (and eventually moving here). I had bought a Nexus One
and more recently a Galaxy Nexus direct from Google so I wouldn't have to deal
with unlocking hassles.

The first place I walked into in Paddington station 2 years ago was Vodafone.
For a £10 top-up I get 500MB of data that's good for 30 days, and the credit
is generally enough to last me for that period as well (it's less than 100
mins I think, but I tend to use Skype for long conversations). My wife pays
slightly more for unlimited data and 300 mins/3000 texts since she talks more.
It's a very minor hassle to top up every month, but it's crazy to think how
much more we were paying in the states. Saving well over a $1000 a year.

I didn't realize prepaid plans were available in the states. I thought it was
basically just the prepaid feature phones they sell in gas stations. I'll
definitely be looking for a better deal when I get back.

------
mistercow
I can't speak for the population at large, but I can say why I will be
switching from MetroPCS even though I've been happy with them: coverage. My
phone does not work as a phone - at all - within a 10 mile radius of where I
now live. I'll be looking into other prepaid options, but nothing looks nearly
as promising and I quickly start encroaching on "not actually cheaper"
territory. Virgin mobile would be one of the better options, but I refuse to
give them any business ever since they screwed up my billing causing me to
overdraft, and then refused to cover any of the fees that caused me to incur.

~~~
duaneb
Bingo. My only options if I want reliable service are AT&T and Verizon. I
don't want to drive to the top of a mountain just to get cell service.

------
gwillen
Market segmentation. Prepaid plans offer lower-quality handsets, are less
flexible, and tend to gouge you if you have high usage.

Ultimately they're deliberately not designed for people who get a lot of use
out of their phones, because the point is not to sell them to those people.

~~~
keltex
Didn't you read the part about the prepaid iPhone 4 & 4S on Virgin mobile with
unlimited data?

~~~
stonemetal
They just started not having crappy phones in June, so it will take some time
for perceptions to change. Heck I have a virgin mobile phone and this is the
first I have heard of it(iPhone any way, in June they announced getting the
EVO 3d with android 4 on it).

------
pan69
I have a pre-paid Telstra device here in Australia. I hardly use my phone so
it makes sense, right? I cannot buy credit less than $20, which I'm OK with
however, this credit "expires" if I don't use it within a certain time frame.
As if pre-paid credit goes stale... If I've run out of credit and I haven't
topped up my account within a certain amount time, I will receive and SMS that
they're going to cancel my account.

~~~
Wingman4l7
This makes me practically foam at the mouth. "Pre-paid" that expires a month
or two after you purchase it, _isn't_. It is merely paying month-to-month.
Pre-paid should not expire for a reasonable time-frame (at least a year, if
ever), regardless of how much you've purchased -- just like international
calling cards.

~~~
Dylan16807
It depends on how the expiration works. I think tracfone's policy is fair. As
long as you don't run out of service days your minutes will never expire, and
you can get three months of them for $20.

~~~
Wingman4l7
I was going to mention TracFone as a good example, actually -- but I looked at
their website and saw that they had the "service days" limitation that you
mention. IIRC they used to have an even better policy than that, more in line
with what I described.

~~~
Dylan16807
Really? All I know about TracFone policy changes is that _service days_ used
to expire so you were forced to buy a card every 3 months instead of stocking
up. But they changed that.

Either way it doesn't make sense to charge $0 for a phone to consume resources
by having a constant connection to cell phone towers and reserving a number.
$7 is pretty cheap so I hope it's a fair price compared to actual costs.

------
PaulHoule
I'm a very happy Tracfone customer. I've seen people get into so much trouble
with contracts, whereas with Tracfone I've experienced the best customer
service.

Once, for instance, I lost a phone with 3000 minutes on it, and I was able to
buy a new phone at Target and transfer the minutes in about ten minutes.
Contrast this to the hours that people spent on the phone talking to AT&T
people that just screw up your account.

------
mike-cardwell
I use prepaid T-Mobile in the UK. I buy a £20 "6MONTHWEB" booster once every 6
months and it gives me 500MB of data transfer per month for the next 6 months,
which is more than I use (I have wifi at home and work). I barely ever use it
for calls or SMS, so my phone costs me somewhere between £3.33 and £4.00 per
month (not including the initial cost of buying the phone of course). SMS
would have been an issue, but I managed to convince all of my common SMS
contacts to switch over to using Kik Messenger instead.

~~~
kalleboo
I travel a lot and use prepaid almost all the time - all my friends are on
Android or iPhone and I can use either Google Talk or iMessage. The only
person I ever send SMS to anymore is my dad who has a blackberry. I have a
friend with more diverse friends and they're all on WhatsApp.

I can't imagine the panic operators are feeling over declining SMS revenue.

~~~
ams6110
I thought (in the US anyway) that most carriers had unlimited talk/text now.
Data is where the tiered pricing is.

------
jiggy2011
As somebody who is not a heavy phone user I only recently switched from using
prepaid to contract. I think there's a few reasons that contracts are popular.

Cost, a new Iphone 4S is ~£400, with a contract you effectively get it for £40
up front. Sure, over the life of the 2 year contract it might work out cheaper
to buy it up front but not everybody has £400 up front and they really have
their heart set on the iphone. It's basically another form of "buy now , pay
later".

Convenience , a monthly paid phone will always work as long as you remember to
pay the bill. My days on prepaid phones were a hassle as I remember needing to
make calls and having no credit, or being cut off in the middle of a call due
to running out of credit. Having to wrestle with the automated payment line in
order to make an important call is a real pain.

Culture, There is a perception (in the UK at least) that prepaid phones are
for children and drug dealers while serious grown ups will have a monthly
contract. I know a few women who would consider a guy who uses a prepaid phone
as a "bad sign" if out on a date for example.

~~~
bryanlarsen
If you're using an expensive phone everybody will assume that you're on a
monthly plan, so you can have the best of both worlds.

For topping up prepaid, I just set up automatic monthly payments for some
amount larger than I'd regularly use. Sure, the balance would grow, so
occasionally I would just hold a payment. The key is that I had to actively
act to NOT pay.

------
superuser2
Virgin Mobile (Sprint reseller) and T-Mobile prepaid, during my
experimentation, did not roam. Outside of your carrier's direct coverage area,
you got nothing. This is a huge deal if you ever leave a major metropolitan
area and your carrier is not Verizon.

At least for me, that's why.

~~~
aditya
This is huge. I've got the Sprint iPhone in NYC and I'm on "Extended" quite
often even in the city, if the Virgin phone was just going to go dark and not
roam, that would make for pretty crappy coverage...

------
nolliesnom
In T-Mobile US's case, pre-paid services like the pay-as-you-go or Monthly4G
plans do not have access to the full set of towers that the contracted plans
do. Per a sales rep I talked to yesterday, the non-contracted plans exclude
domestic "partner carriers". This comes up if T-Mobile is poor in an area and
they contract with AT&T for coverage.

~~~
eli_gottlieb
Yeah, but it's not really _that_ much of a problem compared to dealing with
goddamn Verizon. $50/month for unlimited everything is pretty decent.

Admittedly, the instant I move from Massachusetts to Haifa this September I'll
be heading off to a mall to find a new phone plan. The entire bleeding country
over there basically runs on no-contract SIM plans, so the competition has
dragged prices _way_ down. Their equivalent of my current T-Mobile plan costs
about $22/month (including VAT, as far as I know) and includes unlimited
international calling (to either North America alone or North America+Europe
et al depending on when you want your data throttled).

------
ilamont
_Right now, consumers don’t do the math_

The same comment can be said for many other expensive monthly subscriptions
and pseudo-subscriptions, including cable TV and car loan/lease payments. I'd
include mortgages as well, but in my state the paperwork is actually very
clear about monthly costs and total costs (principal + interest + fees) over
the lifetime of the loan.

I've been using prepaid plans for as long as I have owned mobile phones (10+
years). First was AT&T GoPhone on cheapo handsets (paid about $100/year from
2001 until 2011), now it's a T-Mobile Monthly4G plan on a midrange Android
device (Samsung Exhibit II which cost $200, the plan costs $30/month).

The savings add up. Back-of-the-envelope, I estimate I've saved more than
$3000 since 2001, compared to if I had started on contracts.

~~~
delinka
"...in my state the paperwork is actually very clear about monthly costs and
total costs (principal + interest + fees) over the lifetime of the loan."

That's because the loan industry is regulated to disclose these numbers. If
some US government agency attempted to enforce this kind of upfront openness
on wireless companies, there'd be a veritable shit storm of lobbying effort to
stop it. Funny thing is, if the monthly payment fits within consumers'
budgets, they don't particularly care about the overall cost. And if the
_actual_ bill is within, oh say, 25% over the stated amount, they'll pay the
extra without question.

------
zyb09
Well the truth is most people are pretty stupid in that regard.

\- they don't want to pay $500-$600 upfront, so they rather go with a
contract, even though in the end they pay more.

\- they can't be bothered to buy a phone separate and do the research to find
the right plan for them.

\- they just want to go in a store and leave with a nice phone, without
thinking and paying too much.

------
tonfa
It is interesting because in France some operators are fighting to get
subsidized phones considered as a consumer credit (you just pay the phone over
time instead of up front, like a credit).

Since consumer credit is much more heavily regulated, if they win, people will
be more likely to consider prepaid plans and non-subsidized phones.

~~~
a3_nm
I was about to mention that. If anyone wants more detail, what's happening is
that is Free Mobile (new player on the market) is suing SFR (one of the three
major players) for unfair competition. Here is a source (in French):
[http://www.capital.fr/a-la-une/actualites/exclusif-free-
port...](http://www.capital.fr/a-la-une/actualites/exclusif-free-porte-
plainte-contre-sfr-741894)

------
whathappenedto
Prepaid is not cheaper if you are smart about your plan. With prepaid, you
cannot

1) Get the "standard" 20% corporate/education discount that most phone
companies offer

2) Get a family plan which can be much cheaper

3) Get data for cheap (t-mobile offers 200mb data for $10/month)

4) Get free nighttime and weekend minutes

5) Get free calling within the phone network

Most people on prepaid could get a better deal without prepaid if they shopped
around a bit.

I would love it if people stopped the misconception that "prepaid is cheaper"
and instead realized that different plans are better for different phone usage
habits.

Update: formatting, changed one instance of the word "on contract" to "without
prepaid"

~~~
gergles
I pay $45 a month for unlimited everything on the AT&T network (Straight
Talk). Nobody else can even remotely come close to that.

The absolute cheapest postpaid plan any carrier offers is $40 a month plus
bullshit fees and taxes - even if you knock 20% (which is an abnormally high
discount - and its especially disingenuous to suggest a 20% discount in a
_startup forum_ where people almost certainly aren't affiliated with a company
of sufficient size to receive such a discount) off of that, that's $32 +
'fees' and taxes plus the cost of an SMS and/or data plan. Your 'free'
features start looking a lot less competitive at that point.

~~~
whathappenedto
I've seen 15-25% off for being a member of a variety of institutions, like
credit unions, AAA, costco, universities, etc., many of which hacker news
members are a part of. And you can save a lot with a family plan by adding $5
additional lines. Walmart has a $30/month plan, and T-mobile has $35/month
plans.

Like I said, it depends how you shop around and your usage habits.

ps: I don't think "disingenuous" is the word you're looking for here

------
edward
Virgin Media customer support is terrible. You often have to wait over 30
minutes to talk to somebody.

Virgin Media uses the Sprint network. Verizon and Sprint have roaming
agreements, but only for contract phones. If you're outside Sprint coverage on
a contract you can roam to Verizon, but with Virgin Media you don't roam.

------
krosaen
It's not apples to apples at this point, but I hope i will be soon. E.g if
you're on Virgin mobile, yes you're "on sprint" but you can't roam onto
Verizon's network for free like you can when you're officially on sprint with
a contract. So if you live in NYC it could work, but if you need solid
coverage, for instance, in the midwest, you either have to pony up for the 2
year contract or have terrible coverage with one of the lower tier networks.

Also, last time I checked, Verizon, which has waaay better coverage than
everyone else, does not actually make it any cheaper to go off contract.

I'm being very lazy and not providing any citations for any of my claims, I
hope I'm proven wrong by more recent news or newer options.

~~~
xiaomai
You're right Virgin Mobile not having the free-roaming agreement that Sprint
does. In practice this hasn't mattered for me in most of the Western states
(Sprint has coverage along the major freeways and in rural Utah, at least). I
still have older GSM feature phones though, so if I were ever in a position
where I needed to be sure I would have coverage I guess I would just get a
pre-paid SIM from AT&T or someone.

------
yessql
I switched from Verizon to Straight Talk, and I can't believe how much better
my coverage is, how much better my plan is, and how much cheaper it is.

The one thing is that the phone is not subsidized, so I bought a $300 LG
Android phone. But at $50/month for unlimited talk/text/3G versus $90/month on
Verizon for limited on talk and text, that payback is well short of the 2 year
contract I would have been locked into.

I tell everyone I know how happy I am that my wife and I switched, but most
people just stare blankly at me, like there must be some catch and some valid
reason to stick with paying twice as much to a major player in the wireless
oligopoly with hostile customer service.

~~~
smackfu
Why would switching to a prepaid plan give you better coverage?

~~~
jdeibele
He's switching networks from Verizon to AT&T, which is what Straight Talk uses
to provide service.

Most people and surveys find that Verizon works better for them but that's not
always the case.

------
Caerus
It should be mentioned it's a slightly stretched definition of "unlimited
data". From Virgin Mobile [1]:

Once 2.5GB (3.5 if paying for "mobile hotspot") of data is consumed during the
monthly cycle, data speeds may be reduced to 256 kbps or below for the rest of
that monthly plan cycle.

It was only 200MB last time I looked (although that may not have been with
Virgin) which is why I went for a contract plan. Also, outside the iPhone, the
selection is really poor.

1) [http://www.virginmobileusa.com/cell-phone-plans/beyond-
talk-...](http://www.virginmobileusa.com/cell-phone-plans/beyond-talk-
plans/faqs/)

~~~
Dylan16807
200MB definitely wouldn't have been Virgin. A few months ago they had truly
unlimited data with no throttling. And for a lower price...

------
robertszkutak
Combined with Google Voice, I've been using a prepaid cell phone for a couple
of years now. I only pay about $30 every three months and I've never once come
close to hitting my prepaid limit.

------
shmerl
The bottom line - do your math and avoid lock-ins like CDMA. For example
N900/N9 users in US always used prepaid plans, since those devices were never
subsidized in States. And it does come out cheaper overall. The main reason
why providers try to underplay non contract plan is the lock-in. They don't
want users to switch easily, which is possible with GSM devices and non
contract plans.

------
overshard
It's easy to see why they aren't popular. There aren't a lot of Prepaid phone
stores, I see Verizon and AT&T stores _everywhere_. And you can't get the
Newest Phone^(TM) from them. If the iPhone 5 was released right this instant
it wouldn't hit somewhere like Virgin Mobile for at least a year, probably
longer. (They just recently got the iPhone 4...)

~~~
Spooky23
Maybe your state is different, but every gas station, Wal-Mart and grocery in
my region sells prepaid phones!

------
anuraj
97% of users in India are prepaid - that is almost 550m users. You can get a
pre-paid connection without paying anything and recharge options start from Rs
10(20 cents). 1 minute call costs less than 2 cents. Free cell phone plans are
not popular as customers can just buy a prepaid card and use it with any phone
they like. (Phones start at $20)

------
Spooky23
They missed a key point -- marketing. Prepaid phones are marketed to low-end
consumers... Kids, cheapstakes, poor folk, undocumented workers, people eith
bad credit, etc.

People with money aren't going to buy a cellphone from a Family Dollar or
Exxon.

------
bratao
In Brazil prepaid phones are more than 80% of active lines. Here in the U.S
I'm completely scared how poor and expensive the service are. The Brazil
service and awful and get a lot of complaints, but here is just worse.

------
anthonyb
Er, they're not cheaper - at least here in Australia:
<http://www.virginmobile.com.au/mobile-data-plans/>

Neither of the major players here, Telstra or Optus, seem to do prepaid data,
although they're in the same ballpark for postpaid:
[https://www.optusbusiness.com.au/shop/mobilephones/packs/mob...](https://www.optusbusiness.com.au/shop/mobilephones/packs/mobiledata)

~~~
krolley
Personally, prepaid data is what I would really love. I am often back in
Australia for one month every one to two years, and an iPhone without data is
such a useless device. A beautiful, shiny black mini computer in which all the
useful functions aren't available. So frustrating.

------
pkulak
I've found that if you have a family plan, the savings aren't there to sign
each person up with a contract free phone. Especially considering that the
subsidies now for the latest phones are about $400. The article also doesn't
take interest into account for that loan that the provider gives you. If you
need to put that contract-free phone on a credit card, that could make it a
bad deal as well.

------
sliverstorm
Prepaid used to cost a fortune if you used your phone more than about 10
minutes a month; it's only recently that it started to come down in price.

------
egillie
I actually made a few hundred dollars sophomore year by selling prepaid phones
on eBay. I'd buy it from the the site directly and ship it to the buyer
directly. I think people looking for replacement phones for their post-paid
plans would search by model number on eBay, and had no idea that prepaid
phones were so cheap.

------
notJim
I wonder if corporate discounts and family plans are part of the reason. I'm
on a family plan with T-Mobile with my parents and siblings and it's about $45
a month for (I think--I've never hit the limit) 4GB of high-speed data and
unlimited messaging, plus of course an upgrade every 2 years.

------
fidz
In Indonesia, prepaid cards (and cellphones) are common. No one use
annual/monthly bill except they use the cellphone intensively (so they don't
want to get rid with empty balance).

The only reason is with prepaid cards, they can control the balance, losing
fear of unexpected high bill.

~~~
seanmcdirmid
Same in China. I pay about 90 RMB a month for 90 minutes + 300 MB of data. Its
not strictly prepay at that point, but you just remember to buy your plan
every month, there is no contract, and BYOP (bring your own phone). I could go
prepay if I wanted, but with data buying a plan each month makes more sense.

------
delackner
Meanwhile, in Japan, you get absolutely no monthly cost benefit for buying
your phone up-front, the same monthly fees either way, and you get horrible
per-minute pricing if you go prepaid (up to 2x the average post-paid per
minute price).

------
fishcakes
if you take the (low) depreciation rate of the phone into account its probably
even more true. the resell rates on iPhones is quite high. used iPhone 4's are
going for apprx $250. you could think of it as a lease.

------
reledi
I use $100 of prepaid credit with Telus (I'm in Canada) and it lasts me a
year. I mostly use my Android phone for the wi-fi. Most providers offer a free
sms service online and I use Google Talk for free phone calls.

