Go Prepaid (In Some Cases)

This is the fourth in a series of how to cut your cell phone bill.

It wasn’t that long ago that prepaid was an afterthought in the cell phone marketplace.  High rates and limited phone selection kept interest in prepaid limited to those whose credit didn’t allow them to get a cell phone contract.

A number of things changed in recent years.  First, cell phone carriers started requiring two-year contracts for most subscribers, vs. the one-year norm that had been in place.   This likely served to make more people at least aware of the prepaid alternative.     Second, the emergence of companies like Virgin Mobile USA and Boost whose marketing efforts pushed no-contract into a teenage market that had mostly been ignored by the major carriers.   Third, prepaid pricing began to fall and  ”pay monthly” plans arrived, with a structure that looked like contract plans, but without the contract.   Finally, led by expanding regional no-contract carriers like Cricket and MetroPCS that offered unlimited service for a flat fee, the national prepaid providers began offering monthly pricing at a level that was actually below that of the major carriers.  For a time, carriers like AT&T and Verizon had rates 100% higher than some of these no-contract carriers were offering.

Whether prepaid service makes sense for you depends on a number of things.   From a rate perspective, very light and very heavy users of wireless can save; it is less clear-cut for those using a moderate amount each month.

• Light Users:     Pay-as-you-Go prepaid can minimize your monthly cost, even though the per-minute rate might be higher than in a contract plan.  Consider a 100 minute per month user.     A 10 cent per minute prepaid plan would cost $10/month vs. a $40 per month minimum with carriers like AT&T and Verizon.   For those looking at this option, keep in mind that airtime cards have expiration periods that effectively put a floor on how little you can spend each month.
• Heavy Users:   Several carriers offer unlimited no contract voice service for $50 a month.  Straight Talk offers unlimited voice, text and data for just $45.   T-Mobile comes closest to this at $60 for unlimited voice, while AT&T and Verizon are at $70.

To see if you can save money with prepaid, use our CellCalc rate plan comparison tool.  It will recommend specific plans based on your usage and the features you want in your plan.   However, even if you can save money with prepaid, there are other reasons why you still might choose a contract plan.

• You’ll pay full price for the phone. This can be very little or can be several hundred dollars for a smartphone (see next bullet).   When you get a contract plan, the price of the phone is heavily subsidized by the carrier.   The future of cell phone pricing can be seen with what T-Mobile does:   They have a series of contract and no-contract plans, where the no-contract ones are $10 cheaper per month but require customers to pay full price for the phone.   Basically, you can pay up-front for the phone or effectively pay some each month for it.
• Phone selection is limited. This is just starting to change, and will mostly disappear in the next couple years. For now, however, most smartphones and other higher end phones are not available with prepaid.   In addition, most carriers don’t offer phones with 3G access.  As a result, those who want to use the phone for data are going to have an inferior experience in many cases with prepaid.

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