Prepaid Cell Phones and Refill Cards

New prepaid subscribers outnumbered those signing contracts in the fourth quarter of 2009, accounting for 65% of carriers' 4.2 million new accounts, reports the New Millennium Research Council, a telecommunications think tank.


Earnings reports last week reflected that shift, with AT&T and Verizon both stating that they had added fewer new contract subscribers during the first quarter of 2010. Of AT&T's 1.9 million new customers, only 513,000 signed a contract. AT&T Chief Financial Officer Rick Lindner said recently that the carrier plans to continue to make changes to its reseller and prepaid businesses to drive growth, but that its focus remains on contract accounts.
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"We won't do things that could bring a significant impact or a negative impact to our post-pay business," he said.

Although most of the major carriers have a prepaid-service option, much of their new business actually stems from reselling prepaid services to smaller providers that don't have their own networks, says Delly Tamer, the chief executive of LetsTalk.com. For example, Verizon underwrites Tracfone's new Straight Talk prepaid service (sold only at Wal-Mart). Sprint doesn't offer plans of its own but counts Boost Mobile and Virgin Mobile USA among its brands.

Consumers interested in prepaid have plenty of other provider options as well, including Metro PCS, Leap Wireless and Cricket. Picking a plan is even more complex. Depending on the provider, users may have a choice to pay as they go with pre-purchased bundles of minutes that expire after a set period, or pay by the day with a per-minute rate plus a daily charge for days they use the phone. Some providers also offer a flat-rate monthly plan for a set number of minutes, similar to a carrier contact offer but without the commitment.

But with so much competition, the savings from switching to a prepaid plan aren't often as significant or immediate as many consumers hope. Before ditching a contract, consider these six factors:
1. Minutes used
People who talk 100 minutes or fewer each month almost always come out ahead with prepaid. For everyone else, savings depend more on how often you pick up the phone.

"If you're even a relatively modest user of your cell phone, prepaid plans start to become less attractive," Satyavolu says. Per-minute rates are typically higher than with a contract plan, so talking and checking voice mail adds up quickly. Some plans also charge a daily use fee of $1 to $4, which eats into savings. "You might end up getting very close to post-paid (contract) plan pricing," Satyavolu says.

Prepaid can be a good deal for big talkers, though. Boost Mobile offers an unlimited talk, text and Web plan for $50 per month. Wal-Mart has one for $45, and Metro PCS and Cricket charge $40. That's $20 to $80 cheaper than carriers' comparable unlimited contract plans, Tamer says.
2. Services needed
"If you're not inclined to want to use apps, then prepaid really deserves attention," says Sam Simon, the chairman of the Telecommunications Research and Action Center.

Carriers often require data plans on smart phones, adding an extra $30 to the monthly bill whether the user plans to take advantage of the phone's capabilities or not.