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The Growth of Prepaid Cell Phone Plans

The cell phone market has changed in the past several years. Though the total cellular phone market continues to grow, conventional postpaid plans are now getting smaller in overall market share. Postpaid programs are rapidly being succeeded by less costly prepaid plans.

The two typical types of mobile cellular service plans are prepaid and postpaid. Prepaid plans allow you to pay for your airtime upfront. With postpaid plans – otherwise known as contract plans, you pay for your minutes at the end of the month. Postpaid plans require a credit check and a contract due to the fact you pay for your minutes after you have used them.

The cell phone marketplace has grown each year since its beginnings, and the overall sector continues to grow. In The United States, over 80% of the public at this point use cell phones. That trend is growing, though substantially less quickly today than in prior years.

Standard post-paid phone service plans are the main component within the cell phone market and that segment grows yearly. Having said that, in 2008 new subscriber growth began to slow. From 2008 to 2009 the net additions of new subscribers through all major carriers fell 58%. The following year post-paid growth literally reversed and its share of the total market is shrinking.

In the meantime, prepaid plans started to have an increase in growth. In 2008 over 50% of brand new mobile phone purchasers subscribed to prepaid phone service. The following year, in 2009, over 80% of mobile customer growth came from prepaid plans.

Historically, prepaid mobile plans had been used by only two variations of individuals: kids and people with negative credit. Due to the fact traditional post-paid programs call for a credit verification, many people were unable to purchase a conventional post-paid cell phone. In times past, those people with negative credit or no credit have composed the bulk of the prepaid market. The only disadvantage of prepaid programs, up until very recently, was that prepaid cell phone service plans had been much more costly as compared with post-paid programs.

Two years ago the price tag of prepaid plans started to drop. Currently prepaid cell phone service plans are substantially less costly than post-paid service plans. Quite a few prepaid providers are even providing unlimited airtime plans that are less expensive than equivalent post-paid service plans that have 500 minutes of airtime. The present affordability of prepaid programs and the economic recession are fueling the intense progress of the prepaid cellular phone market.

As expected, the cell phone companies are not completely happy with this, given that they earn significantly more profit on contract programs when compared to prepay. There are several reasons for this is. The first is that contract programs are more expensive than prepay plans. Classic contract plans can run in excess of $80 a month whereas a prepay plan with comparable airtime could be as inexpensive as $40. Second, not only do contract plans earn more profit for the cell phone companies, but they have a risk-free income stream by locking their customers in with long-term contracts. The 3rd reason contract programs are so cost-effective for the cell phone companies is that they outrageous fees if you exceed your minutes allocation, usually 25 or 50 cents for each minute. This can add up rapidly and many folks have accidentally run up huge cellular phone bills because they went over their minutes.

Obviously, with prepay service plans, you don’t have these problems. Prepay programs are now less expensive per minute and they don’t require service contracts. In addition, should you exceed the airtime that you have paid for, it is easy to just purchase more airtime.

Contract plans continue to be preferred by shoppers, though. The most important reason for this is that the cell phone handsets that come with contract plans are inexpensive, at least in the beginning. Many consumers continue to select contract plans because they can’t afford to pay $500 for a phone. The cell phone company will subsidize the price tag of the phone when purchasers sign a 2 year contract. Prepay plans, on the other hand, tend to have more expensive handsets since none of the price is subsidized. Buyers have to pay full price prepay phones. What consumers do not seem to recognize is that the contract plans are able to subsidize the cost of the handset since they recognize that over the course of a 2 year contract they’ll make up the price tag of the phone – and much, much more.

Pay as you go programs continue to gain market share, though. They simply make more sense financially for purchasers. The economy has been bad for some time and there’s no upturn on the horizon. The lower general price of prepaid phone plans will continue to make them more attractive and even more customers will go for prepaid programs over the traditional post-paid plans.

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