Cellphone users cut back on contracts during recession

ByLeslie Cauley, USA TODAY
March 19, 2009, 10:59 PM

— -- More than 60 million consumers are poised to dump their cellphone contracts and pare back on "extras," such as texting and mobile Web access, a new survey shows.

The study released by New Millennium Research Council finds that two out of five Americans with cellphone contracts, or 39%, are likely to cut back on wireless service if the recession deepens over the next six months.

About 19 million consumers — representing one in five cellphone users who have extra features — have actually cut back or have considered doing so in the past six months.

"The true era of cellphone penny-pinching is here," says scholar Allen Hepner at the Washington, D.C.-based think tank. The group accepts funding from a variety of sources, including telecoms.

To save money, many consumers may wind up switching to prepaid plans, which tend to be cheaper, he says. Cellphone users with contracts spend about $60 a month, on average. Monthly prepaid plans start at about $10 a month.

Only about 17% of U.S. cellphone consumers currently use prepaid, but the figure is "creeping up" by a percentage point or two a quarter, thanks to the recession, says Roger Entner, head of telecom research for Nielsen.

Outside the USA, prepaid is far more popular, representing 30% to 80% of users.

Prepaid products are a lot less profitable than contract-based services, Entner notes. That's why big carriers tend to not push prepaid too hard, he says. "They barely break even on prepaid" products. Contract services can have profit margins of 50%.

The U.S. trend toward prepaid has been picking up steam for a while, but the New Millennium study is among the first to attempt to quantify it.

Potentially chilling for U.S. cellphone carriers: 19% of consumers who don't have a cellphone report that they have discontinued wireless service in the past six months because of job loss or other financial concerns, the study says.

"The change in thinking and purchases is clearly already taking place, and has been for months," says Graham Hueber, a senior researcher at the Opinion Research Center, which surveyed 2,005 consumers on behalf of NMRC. Results have a margin of error of 2 percentage points.

Other findings:

•Nearly one in five consumers who have prepaid plans say they have switched from a contract in the past six months because of recession-related concerns.

•Among those who are likely to cut back on wireless, 44% are 18-34; 54% are in households with incomes of $35,000 a year or less; 55% are African American.

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events