Consumers are ditching
their burdensome cellphone contracts and embracing prepaid phones in droves because of the recession. The average cellphone bill is around $130, and that's more than many people want to pay. So they buy a stripped down cellphone and prepay in $50 increments, which certainly stops those nasty surprises that sometimes show up in your cellphone bill.
"Frugal is the new chic," said Joy Miller, 33, a piano teacher in Aubrey, Tex. After almost a decade on contract plans with Verizon Wireless, Mrs. Miller and her husband decided this month to test-drive a few prepaid plans, including MetroPCS. "In today's economy, it's not cool to pay $120 a month for a phone. It's a waste of money."
Although prepaid phones remain a fraction of the overall mobile phone market, sales of the category grew 13 percent in North America last year, nearly three times faster than traditional cellphone plans, according to Pali Research, an investment advisory firm. For the first time in its history, T-Mobile has been signing up more new prepaid customers than traditional ones. And Sprint Nextel is betting that a new flat-rate prepaid plan will help it wring more value from its struggling Nextel unit.
Any stigma attached to the phones -- they are a common prop in any show or movie about gangs and spies -- is falling away as prices drop and the quality of the phones rises. Prepaid carriers like MetroPCS, Virgin Mobile and Sprint’s Boost Mobile division now offer sleeker handsets, better coverage and more options, from 10-cent-a-minute calling cards that customers refill as needed to $50-a-month, flat-rate plans for chatterboxes who want unlimited calling, Web browsing and text messaging.
The savings can be considerable. An AT&T customer with an Apple iPhone on a traditional plan pays at least $130 a month, excluding taxes and fees, for unlimited calls and Web use. Compared with the $50-a-month, all-inclusive prepaid plans, the iPhone owner pays nearly $1,000 more over the course of a year.
Prepaid customers typically have to buy their phones without the subsidies offered with a contract. When Jerry Cruz, a manager at a tanning salon in Manhattan, switched to T-Mobile's prepaid service, he paid more than $300 apiece for Sidekicks, which feature keyboards and cameras, for himself and his daughter. But, he said, he saves at least $40 a month compared with his previous contract with Sprint. "Every dollar I save goes towards something else."
MetroPCS, a carrier based in Dallas that sells only prepaid plans and just added New York and Boston to its network, said it has seen a lot of interest from people who are “cutting the cord,” or abandoning their landlines to use only a mobile phone.
"Over 80 percent of our users use our phone as their primary phone," said Tom Keys, the company's chief operating officer. MetroPCS added 520,000 subscribers in the fourth quarter, the biggest quarterly gain in its six-year history. MetroPCS finished 2008 with more than five million subscribers, a 35 percent increase over 2007.
Many younger consumers have never even signed up for a landline because of the exorbitant prices the phone company is charging. A single residential line can cost close to $100, if services such as Caller ID, Call Waiting and the like are added. A large portion of the bill is comprised of a bewildering array of taxes, fees and line subscriber charges. The taxes on communications are so high now that many consumers are dropping land lines and cable bills altogether.
