As More Wireless Customers Choose Prepaid, Should You?

April 5, 2010— -- Is it time for you to rethink your relationship with your cell phone contract?

If it is you, you wouldn't be alone.

In the fourth quarter of 2009, new prepaid wireless customers exceeded new contract customers for the first time ever, said the Washington, D.C., think tank New Millenium Research Council. In that quarter, prepaid cell phone users accounted for 65 percent of 4.2 million net new wireless subscribers. That's two out of three new customers who chose prepaid over postpaid.

Wireless experts and consumer advocates say the trend shows no signs of letting up. As Americans look for ways to cut corners and save, even wireless customers used to cell phone contracts are deciding to go commitment-free.

"I think it shows consumers are starting to vote with their wallets when it comes to wireless service," said John Breyault, vice president of public policy, telecommunications and fraud for the Washington, D.C.-based National Consumers League.

The ideal candidates for prepaid plans used to be those who were credit-challenged or who didn't make many calls in a given month, he said. But as the prepaid marketplace has grown, Breyault continued, more "all-you-can-eat" prepaid plans have emerged that are increasingly appealing to all kinds of customers.

Consumer Advocate: Prepaid Plans Increasingly Gaining Favor

Although prepaid plans used to be more expensive than contract, or postpaid plans, new services such as Cricket from Leap Wireless or Straight Talk from Tracfone Wireless can be more cost-effective for many wireless customers, Breyault said.

"I think you will see more people who have had cell service, they will look more at prepaid options," he said. "In a recession, that's one place where most customers can look and save money."

And, while prepaid customers used to have to forego the latest and greatest handsets (that are often subsidized by multiyear cell phone plans from bigger carriers such as AT&T and Verizon), he said that cell phone options are increasing.

"I don't think that a prepaid plan and the latest handset are mutually exclusive," Breyault said, predicting that customers will increasingly see more prepaid handsets that more closely resemble postpaid handsets.

Even as the economy starts to improve, Breyault said he doubted he'd see the trend reverse.

Analyst: Wireless Market Is Segmenting

Sam Simon, a fellow for the New Millenium Research Council, said that while the recession is certainly a factor, the wireless market itself is also changing.

"The market that is voice only -- voice and text -- is developing as almost a separate marketplace," he said.

Services such as Cricket and Tracfone tend to stick to the basic cell phones that are good for talking, texting and minimal Web browsing.

While the bigger carriers, like AT&T and Verizon are also offering prepaid plans, he said they're really pushing the smart phones, such as BlackBerries, iPhones and Android smart phones, that come with more costly monthly data plans.

"You're seeing a segmentation in the marketplace," he said.

iPhones, BlackBerrys, Android Phones Still Tied to Contract Plans

For heavy multimedia consumers or those who need more features for professional purposes, smart phones could be the way to go.

But a growing number of people are realizing that they don't actually need all those features and could save dearly over time.

"[Prepaid] was painted in the past as the low-rent option, the budget option," said Scott Steinberg, head of technology for technology consulting and analysis firm TechSavvy. "Now it's quickly becoming recast as the practical option for everyday cell phone users who don't want to be tethered to or shackled to a wireless plan. There's been a major shift."

It used to be that you might sacrifice coverage or customer service, but increasingly that's changing, he said.

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Know Your Plan, Check for Savings

For example, people could only use about 100 minutes a month could save about $20 to $360 a year with Boost Mobile's Pay as You Go service plan.

Consumer Reports' Blyskal said Tracfone was another top-rated carrier in terms of customer service, Web service, connectivity and more. He said it resells minutes from Verizon's network, which has consistently come out on top.

"The more bells and whistles you want, the more likely you'll be with contract, but that's changing. Keep your eyes on prepaid," Blyskal said. "You have to do the math and check it out, but it seems like it's pretty good."