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Prepaid Cellphones Are Cheaper. Why Aren't They Popular? (bits.blogs.nytimes.com)
159 points by hollerith on Aug 5, 2012 | hide | past | favorite | 142 comments

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.

Here in Vietnam I can get 500MB for $2/month and 3GB for $10/month. No contract, no questions asked. If I don't like my carrier I walk across the street to their competitor, buy a new SIM card, and I'm good to go.

This ostensibly communist country is way more free market than the U.S. in many ways.

The same is true in Morocco: There are no controls are verifications to buy a 3G SIM card. Just walk into a corner store and buy an unlimited 3G SIM card for about $25. It's about 2Mbps up and down. Sometimes the shop owner will insist that you need a USB modem, but only because they don't really understand how just-data can work in a phone.

Who is that with? I was in Vietnam earlier this year, and had real trouble getting the road sellers to understand that I wanted some data. Can you give me a clue what to get next time.

I am £15 prepaid with 3 here in the UK, i get 2,000 texts, 600 minutes and UNLIMITED data. I think this is the best deal I have ever heard of.

I'm currently using Viettel. At least in their main shop here in Nha Trang the staff spoke good enough English that they were able to understand what I wanted. Just tell them you want the 3g plan with the monthly fee.

You may have to go into an actual shop to get this set up. The people selling sims on the side of the road aren't very tech savvy in my experience.

When I was in Vietnam I just bought whatever SIM off someone on the road and then went back to my hotel room and googled up the activation instructions. Usually you just text the name of the plan you want to a special shortcode (same as most UK prepaid)

Same here in Uruguay, for prepaid phone use, you just buy a SIM (2 dollars), then you have to either buy a prepaid card or go to a store where you can "fill" your SIM.

Then you can text the name the plan you want, I pay 5 dollars for one month's worth of data (384 megabytes). You can also get one gigabyte for U$S 5, but expires after 5 days.


there's also a fixed contract 3 gb data plan for U$ 15.

So all the sims on the street come with data?

If it's like the Philippines, all the SIM does is get you on the network, but with only a SIM card you can't call, text, or anything. Then you purchase a prepaid card from a convenience store or anywhere with call minutes, text messages, and/or data -- the card has a long code that you plug in to the phone to activate it and associate the minutes etc with your SIM.

Do you use all those 600 mins? For £10, giffgaff gives you unlimited data, unlimited text, but only 200 mins. But I don't even bother with their goodybags. Think I spend about between £5-7 a month on just prepay.

Vietnam I found pretty awesome. I got a sim for my phone, tons of data (which I couldn't use up) and plenty of calls for about £5 (150k VND) which lasted the whole month I was there. And the data speeds seemed pretty good (although I was only on 2G). Think I was with Tomato plan on Viettel?

That sounds very similar to my plan on Tesco mobile although my data is limited to 1.5GBs. What is your experience of 3? I've heard bad things about them and worry about the quality of their coverage. Would you recommend them? And if you don't mind me asking: where in the UK are you located?

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.

Unfortunately, as already pointed out, we are being screwed in the USA and have been for about a decade now. This extends, not only to mobile data, texting/SMS, and calling; but also to land data.

It's not just AT&T that is the problem there is an unspoken wink and a nod between the carriers to maintain an, essentially, monopolistic cartel on the market. More so on land, but also in the air.

As much of our economy, choice in mobile and land data is nothing but a facade.

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

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

If you buy a phone unlocked (as I did from Apple) you can put any SIM in and it will work flawlessly.

Soooo.. Can you possibly write up how to do this??

Buy a prepaid SIM and tell them you want $25/1gb of data. They might force you to buy a $25 rate plan that goces you some minutes and texts. Dont turn on celluar data. Connect to wifi and go to APNChanger.com

Use the wiki to look up your GSM carrier's APN settings.

Using APNChanger's manual entry option, enter the correct settings and install the APN. You may now turn on cellular data. If it says you're not subscribed to a plan when you try to load a website, turn off data, uninstall the APN and repeat, paying careful attention to the APN settings - you typed them in wrong.

At the end of the month, set your data plan to auto renew and make sure you have enough money in your prepaid account so that it does. You'll be charged a few cents for texts and calls if you make them.

You also may have to cut the SIM down to fit in your iPhone.

"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"

I think it's more of a cash flow thing than anything else. People buy the best thing they can afford based on the cash they have available at that very moment.

I don't doubt that you're right about that, but if 50 additional dollars in upfront costs is the deciding factor for someone then getting a high-end smartphone with a ~$80+ per month plan is probably a bad financial move for them in the first place.

this. Yet its amazing how many people seem to get this calculation wrong, or just flat out not care

> 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.

This is similar to my situation. I pay $79/month and pay $4 per month (or thereabouts) for a 32GB iPhone 4S. $0 upfront. I'm a relatively heavy user, and therefore the $1992 over 24 months that I pay seems the better deal (for me) than buying it outright for $999 and then only having $40/month to spend on pre-paid credit, which would not be enough for my usage.

I also get (slightly) cheaper call and text rates, AFAIK.

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.

I think your conclusion is valid but that particular anecdote is pointless. If a customer is willing to pay $50 less up front for a cell phone, then chances are any hardware obsolescence isn't going to be particularly noticable.

I think the issue is people think they pay $50 for an older version instead of $300 for the latest, thus saving massive 80% or so. In reality, it's $1,970 vs. $2,220 (assuming $80/mo for two years). The difference is only 11%. If people realized that, many could reconsider accepting significantly outdated hardware for 11% savings over 2-year period.

I understand your point, but I think 'significant outdated hardware' is a misnomer; with the exception of things like Retina Display breaking backwards compatability, its pretty rare that the difference between two phone generations is that important for non-power users.

I'm in Australia too and use Soul/TPG(runs on the Optus network). I pay $15 a month for 1gb data and $40 worth of calls. While I'm not a super heavy user, I never go over my cap. This is what has always kept me from buying a contract subsidised phone...my no-phone contract is just too damn good.

Would love an iPhone, but the only 2 options I have are a 24month contract at around $50/month or lay down around $900AUD for the phone.

Instead I picked up an ex AT&T WP7 phone for $US160 :)

I'm not sure about urban areas, but the further out you go, the worse Telstra (3G coverage) gets. I live about 100k's outside of Adelaide and Optus is superior by far to Telstra and Vodafone (3). All their prices and plans for mobile data are atrocious, so we go with Internode, who lease from Optus and whose prices, while still atrocious, are overall better. And everything about Internode, especially their customer service, is better. My two cents.

But prepaid? That tends to relegate you to "inferior" networks in the US.

Both AT&T and Verizon have competitive prepaid plans, roaming included.

With extortion rates on SMS and data. For something far more competitive, you have to go with a little known company (Straight Talk for example).

I get unlimited SMS and 200 minutes voice for $25 a month through AT&T. The cheapest plan Straight Talk shows on their web site is $30 a month. Am I missing something?

"T-Mobile and Sprint can give good deals but have really patchy coverage"

I am using Boost (Sprint network) and it doesn't seem to roam. Using only Sprint towers, I get one or two bars in most places and drop off of 3G along one segment of my commute. Well worth it though for how little I use it outside of areas with Wifi.

I looked at buying a phone upfront, but it was better to get it from Optus, and go on a 12 month plan. I ended up paying $1200, when the phone was $1000, and I got 12 months of calls and data.

1. Prepaid is common here in Hungary.

2. Net10 in the States normally runs on AT&T infrastructure.

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

I have an Optimus V on Virgin Mobile.

$25 a month for 300 voice minutes and unlimited data (after a few gigabytes this usage is throttled, but still remains relatively fast for a phone data connection when you aren't constantly watching streaming netflix or whatever, which I never do with my phone anyway).

As a full-on Google Voice/VOIP user, the fact that I have "only" 300 minutes is pretty much meaningless, I consume almost entirely "data". As an Android fanboy/Cynaogenmod user my phone is running Ice Cream Sandwich even though the Optimus V is old enough to ship with Froyo standard. I use the tethering features available in CM/Android daily.

Granted, I'm not saying my setup would work for everyone, you have to be fairly technical to take advantage of unofficial ROM upgrades and I'm probably bending if not breaking terms of usage with my tethering usage (even though I only use it for basic web browsing and stuff, I'm not running torrents or anything goofy like that), but my current deal is the best I've ever seen for a smartphone.

The phone cost $150 no-contract and I've been paying $25 a month for the past year and a half or so. The phone's hardware pales in comparison to the latest iPhone or high-end Android phone, but it does everything I need including the full Google Nav GPS experience, pocket browser, pocket tethering modem, etc.

Sadly they upped the monthly rate to $35 (still a great deal!) but as long as I stay on my Optimus I'm "grandfathered" in at the old rate, which is pretty cool considering I'm not on any contract to start with.

I'm using an Optimus V on VM as well, but my experience with their "unlimited" data is disappointing. I have been using the service since May, 2011, and the bandwidth typically doesn't serve more than 40 KB/s consistently around my area. For instance, listening to a stream via TuneIn is unbearable, because VM data service can't even stream at 32 K without buffering every few seconds. It doesn't matter that VM advertises unlimited data or have a 2.5 GB fast cap when the service can't even be used besides reading email.

If I were a new user, I'd go with T-Mobile instead of Virgin Mobile. T-Mobile uses GSM so switching to a new phone won't require calling up VM for activation -- just pop in the SIMM card. Right now there's no way to use a newer CDMA phone without losing my grandfathered $25/mon plan.

im also another doing the same thing, except I bought my optimus v for $40 off ebay. Using roms, I get excellent performance and battery life (beating even my wifes iphone4 with similar usage). Completely worth it except I'll be probably switching to a gsm pre paid only because I'd like to take my phone with me when I travel.

Measuring the utility of having the internet in your pocket in megabytes seems crazy to me. I would instead measure it in the number of times you use a map application to get where you're going, or the browser to figure out if a store is open or not, or the Amazon app to see if something is cheaper, or the number of times you look up something on your iPad using tethering on your phone.

Of course, you might still find that the utility is low :).

Those reasons were the exact things I thought I would use. But it never turned out that way.

I feel like so many of these use cases are romanticized.

Mapping on the phone is painful, especially if you have no signal. I tried it in LA and found myself waiting on tiles to load. I just decided to buy a small map and use my boyscout map skills -- which was better.

Amazon is great, but by the time I find myself in Best Buy, the decision to purchase has been made. Brick and mortar has the benefit of immediacy.

Same goes with tethering and immediate access to information. Coffee shops, office lobbies, and client offices offer all the connectivity my laptop could want. Secondly, I am not the kind of person to settle a dispute by whipping out wikipedia entry at dinner.

In terms of utility, I say it is definitely marginal. The times when it was convenient did not outweigh the expense.

> Amazon is great, but by the time I find myself in Best Buy, the decision to purchase has been made. Brick and mortar has the benefit of immediacy.

Even if you're planning to buy brick and mortar, I find it valuable to be able to look at Amazon et al and confirm that I'm not getting ripped off (since, once in a while, I am).

I was starting to list examples of how a phone with internet changed my life, but I think they all come down to one thing: using public transport.

I'm on T-mobile's $30/month prepaid plan for unlimited texts and 4G data (you get throttled to EDGE speeds after 5GB but ... 5GB is a lot.) Voice calls are "limited" but that's what VOIP is for!

Unfortunately this plan is "web exclusive" and limited to new activations only, so you have to order a new SIM online and activate it with a new number to switch to it. (You can port the number afterwards; I just route everything through Google Voice).


What is your GVoice-VOIP setup?

I've been on that t-mobile plan for a few months using GrooveIP for GVoice-VOIP, but keep thinking there is a better way.

I've tried Talkatone, Sipdroid, and Groove IP. GrooveIP is easily the best (sadly). Tighter integration sure would be swell, but it seems a lost cause. It works well enough, especially for receiving calls while on Wifi. Beats the hell out of paying for minutes, though.

Have you tried Talkatone? It's not perfect but seems to be working pretty well for me so far...

I've also been texting more on my smartphone than I did on the dumbphone, especially since installing TouchPal.

So you can't port an existing number to the 30/month Monthly4G plan?

You text and drive at the same time? Isn't that illegal in most countries and states?

Not to mention pretty dangerous.

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

T9 is better than using those micro sized keyboards though.

read again with sarcasm tag on :-)

Arstechnica had a recent article on this: http://arstechnica.com/business/2012/06/prepaid-mobile-phone...

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.

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.

Trying to get a handle on what one gives up with the ST plan. Here's what I've got: no domestic or int'l roaming, no visual voicemail, hard data cap at 2GB/30days, and no streaming services (Spotify, Pandora) over 3G. That cover it? Thanks.

My AT&T plan ended a couple of weeks ago. I was considering buying a Virgin Mobile iPhone and reselling it when the iPhone 5 came out, but this seems like a better way to bide my time.

Googling for things like "iPhone ATT prepaid" didn't yield good results. The power of a human recommendation is infinitely useful. And backed up by an Ars technica article is double win.

Thanks Zdw...

The main thing keeping me from switching from AT&T to ST right now is 1) the disconnect fee (1.4 yrs left on my contract and 2) iPhone 5, if unlocked like 4S, will probably be 4G and might not get as good of speeds on ST

This is how they luck us in, even though we'd truly prefer to be somewhere else.

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.

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.

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.

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.

Where I'm from it's so odd to think about what handsets a carrier "offer". First of all, I haven't bought a phone from a carrier since 1999, second, all the carriers here have all the phones, or you can get any phone on whatever carrier you want through an independent electronics store (where you'll still get a subsidy)

This is really one of the worst dysfunctions of mobile telephony today, at least in North America.

The cell phone carriers have an iron grip on the sales channel for cell phones, and that sales channel is the oxygen supply for handset manufacturers. Realistically that means that Samsung needs to sell to Verizon, not Verizon's customers.

Interested in why the HTC One X hasn't sold very well? In spite of equivalent electronics compared to Samsung and far superior build quality? It's because Verizon and AT&T got pissed off at HTC a year ago when HTC announced that they were going to be unlocking their boot loaders.

HTC forgot that they don't sell to cell phone users - they sell to the telephone company.

While I agree that carrier control of handsets is one of the deepest dysfunctions of mobile telephony in North America, I think you're wrong about the HTC One X. After all, HTC did disable the bootloader unlock for the AT&T version and presumably would have done the same for Verizon.

Problems the One X has had that have had nothing to do with US carriers and bootloaders:

1. No microSD card slot and no removable battery, making it a trickier sale to existing HTC customers.

2. US customs holdup from the Apple lawsuit that delayed the EVO 4G LTE launch on Sprint and limited supply in the pre-SGS3 period on AT&T.

3. Disappointing European sales (probably due to #1).

HTC has had their problems and made their mistakes, but unlocking bootloaders has not been one of them. Remember, with the recent exception of the Verizon SGS3 (and they've already had to partially backtrack with a "developer edition"), Samsung has had wide-open bootloaders the whole time (and employs Cyanogen, to boot).

Is it really the case that the only way to get a handset in the US is through a carrier? Not even from Amazon or other online electronics retailer?

I've not bought a handset in the US. And never will, from a carrier (irrespective of the cost) because -

a). I want an unlocked handset

b). I don't want carrier branding or crapware on my phone

c). I don't trust carriers (ref. eg. CarrierIQ).

You can buy a handset through an electronics retailer. But:

- Every cell carrier in the US has its own frequencies, so you generally have to buy a handset specific to a particular carrier. (The GSM carriers, T-mobile and AT&T, share the voice and 2G data frequencies, but they have different 3G data frequencies. The CDMA carriers share nothing.)

- With most carriers, when you start service you are paying a baked-in surcharge designed to pay for the discount on the handset you got from them. You pay this whether you bought the handset, or brought your own. So if you buy a handset and then set up a plan, you're throwing money away if you don't buy it from the carrier. (There are some carriers for which this isn't true.)

No, it's not the case. Buying through the carrier is the main paradigm in place, but plenty of even "normal" retailers [1] offer unlocked phones, as well as places like eBay, and Google (e.g. Google sells the Galaxy Nexus unlocked, directly).

[1] http://www.bestbuy.com/site/Mobile-Cell-Phones/Unlocked-Mobi...

Mostly, yea.

You can buy on Amazon, but even there you're still buying it through a carrier, with a plan.

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

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).

Didn't you read the part about them not being marketed and the iPhone not even being available until a few months ago?

To be fair Virgin started throttling after a couple gigabytes a few months ago, but the throttled speeds are still supposed to be relatively fast (256 kilobit).

Hmm, that may be true. There are certainly a lot of recent locked handsets one can only buy in a post-paid package in the US. In my experience, however, post-paid overage rates can be quite substantial too (plus any so-called "cramming"). Some of the carriers have been pushing prepaid unlimited plans (some including data, throttled after certain thresholds of course) at pretty attractive price points (usually advertised in terms of a price inclusive of all taxes and fees unlike post-paid). It has worked out well for me so far (crossing fingers). There is also the phenomenon where in Asian and European countries people pay the full unsubsidized cost of the latest and greatest phone AND for a post-paid plan. Just curious, what other inflexibilities have you encountered?

Many prepaid plans don't offer any handsets. You need to bring your own and just buy a SIM card. The whole practice of capping the bandwidth is rather crooked, but it exits all the same even on the contract plans.

"lower-quality handsets"?

Not really. The good-quality handsets are just more expensive.

>Prepaid plans offer lower-quality handsets,

Virgin Mobile offers iphone4 and t-mobile you can put almost any quality android phone on their prepaid.

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.

In Portugal most people have prepaid cellphones, you can get the same kinds (all the recent high end smartphones etc) as with a contract and most prepaid credit plans don't expire.

Prepaid services vary widely depending on the country you're in. In some places, the credit is valid for a quite short amount of time. In France, the validity of my credit depends on the amount I charge. So I had to make some crazy calculations to choose between putting around $10 that will be valid 15 days, or $25 valid one month, etc.

On the other hand, I'm in Sweden now. My phone bill for the whole year has been below $100 (I don't phone much, but I use internet a lot). So, "pre-paid" can mean a lot of different things.

Free in France is now selling a monthly subscription you can quit anytime (no contract, no subvention for the phone, just like the typical prepaid stuff) that gives you both unlimited voice calls and unlimited data and sms for only 20 euros. 16 euros instead of 20 if you're also subscribed to their ISP.

And for those who don't really have a need for cell phones beyond the basics, they have an offer at 2 euros a month for 1 hour of voice time and 60 SMS. Even better, it's free as in beer (0 euros) if you have chosen Free as your ISP. http://www.free.fr/adsl/index.html

You'd really have to be bad at math to chose an expensive contract nowadays over paying in full for your own phone and getting that kind of plan.

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.

So, here's why that happens.

There are typically two phone-minute charging models: "Calling party pays" (Eurozone, others) and "Both sides pay" (US, Australia(?)).

In a "both sides pay" scenario, each customer pays for their own side of a call. I call your mobile from my mobile, we're each charged a minute per minute.

In a "calling party pays" scenario, the person who calls pays for both sides of the call. You can tell when this is happening by whether there are different rates for calling landlines vs. mobile phones.

The important thing here is what this means for pre-paid services.

In a "calling party pays" situation, a mobile subscriber can continue to make money for the telco _just by leaving their phone turned on_, regardless of whether they can make outbound calls. The inbound caller will still be giving money to the pre-paid caller's telco.

With "both sides pay", the telco of the pre-paid customer receives all revenue up-front; there's no subsequent money to be made because all charges come out of the credit balance of the pre-paid customer. Between that, and revenue recognition rules, it makes sense to expire that credit every 1-2 months because there's no other way to get a revenue stream off that customer.

Here in Portugal they're like that nowadays; I think you still have to make a phone call every month or so, but I imagine that's to cut down on abandoned phones.

That said, I can't imagine the carriers being too happy about having clients like me, who only charge the phone with $10 every three months ;)

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.

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.

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.

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.

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.

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.

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

I also use prepaid in the UK. They are definitely the best deals, unless you want the very latest. That simply isn't available PAYG and if it is, it's a ridiculously expensive package so you just don't do it.

I've spent less than 200 pounds in two years in the service, and another 200 in terminals (I use 2, a Blackberry Curve 3G and a Xperia Arc S upgraded to ICS). I won't get another terminal in a year or two, so my average expense per month is less than 15 quid, and when I'm abroad I spend even less.

I'm on TESCO Mobile, I buy a £5 500MB data bundle each month. Works great. I can still SMS and call when I need to, but I don't most of the time.

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.

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.

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.

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...

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.

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).

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.

"...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.

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.

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.

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...

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"

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.

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

>3) 200mb for $10/month

That's pretty expensive. Here in the UK on Tesco mobile (uses O2's (Telefonica) network) prepaid/pay as you go, £5 gets me 500mb for a month.

I guess data must be more pricey in the states.

Typical "unlimited" data plans are $30/month. Considering that I use my data freely, and I never use 200mb, I wouldn't benefit from an increase in limit. But you're right that £5 is a little less than $10.

2.5x the data for about $2 less. But not in the same country :)

The U.S. has surprisingly expensive phone, data and texting costs.

Just from this thread, for the same U$ 10/month you say is "cheap" from T-mobile to get 200 mb:

Vietnam - 2.5 GB (500 mb for U$ 2)

China - 300 mb data PLUS 90 mins phone

UK - "unlimited" data and text (Giffgaff), 1 gb (Tesco) or 500 mb (Vodafone)

Uruguay - 384 mb (Antel)

Australia - 600 mb (Soul/TPG)

People are paying the mobile carriers, so they don't feel much need to cut prices. Last week, I saw someone here reconsidering whether it was worth it to keep 3 data devices activated on Verizon's network (apparently a couple of ipads, in addition to cell phones...).

The cost of texting is pretty overblown, the people that are sending the most texts almost certainly have a bundle that is essentially unlimited, for others, $2 a month for 20 texts is cheaper than $5 or $10 for 20 texts (Sure, $24 a year can still be made to look expensive).

You're off. I'm doing the non-contract t-mobile thing in the US. I have the exact 200MB/$10/mo thing you mentioned, as well as the free nighttime/weekend minutes and free in-tmobile calling. Just ask them and they'll give it to you.

I should have used the word "non-prepaid" instead of "contract". The non-contract t-mobile thing is not a prepaid plan.

1) Discounts do not apply to "features", like data and text, which for most are now 50% or more of the monthly fee. 2) Family plans are rarely cheaper, unless your family members do not use their phones. 3, 4, 5) Irrelevant for unlimited prepaid plans.

I'm not sure there is a "misconception" -- the majority of users consume less than 2GB of data a month, so prepaid is cheaper option and can offer the exact same coverage (Straight Talk AT&T SIM).

I use a prepaid T-Mobile plan that's $30/month for 100 minutes and 5GB of data. I tend to use about 150 minutes a month, so I'm really paying $35ish with overage.

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.

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.

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.

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.

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

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.

$50/month with StraightTalk is not unlimited data. After you spend 2GB, they will send you a questionnaire on why you use so much data, and what happens after that is kind of random.

I have no idea if that's true after using this service for about 5 months now. And I doubt I'll ever find out, since I almost always use Wifi anyway. All I know is that I pay at lot less, have fewer dropped calls, stopped worrying about how many text messages I use, and I haven't been charged extra for going over on phone minutes like in the past.

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-...

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

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.

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.

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...)

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

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)

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.

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.

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...

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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