Prepaid and pay-as-you-go cell phone services have a dirty reputation. For most of us, they conjure up images of rundown retail locations in strip malls full of smarmy salesmen, 2004-era phones, and sky-high prices to take advantage of people with poor credit.
But times have changed. Prepaid and pay-as-you-go services still offer pay-per-minute pricing for the grandpas and “emergency-only” phone owners of the world, but they’ve also started churning out some impressive unlimited monthly plans that will catch the eye of even cell phone owners who wear their contracts like wedding rings as well. Still, at $50 a month for unlimited voice and text messages, it makes you wonder: What’s the catch?
Here’s a quick-and-dirty rundown of the prepaid cell phone business, from the nitty-gritty details of how plans and providers actually work, to the pros and cons of actually buying airtime from one. Should you decide that you’re ready to chop the ball and chain and formally run into the arms of a month-to-month lover, make sure to check out our guide to the best prepaid and pay-as-you-go cell phone providers as well.
How Prepaid Cell Phones Work
As the name would suggest, prepaid carriers force you to pay up front for your cell phone usage, rather than having the actual amount of airtime tabulated by the cell phone service provider and billed the month after you actually burn up all the minutes. However, this type of billing can take two forms: Pay as you go, and unlimited prepaid monthly.
Pay-as-you-go plans quite literally require you to pay for every minute you use. Typically, you can buy them in chunks of several hundred minutes at a time, with prices ranging between 6 cents and 30 cents per minute. When you run out, your phone stops working, preventing the sort of overages you might end up with on a typical carrier after exceeding your monthly allotment.
Prepaid monthly plans, by contrast, take a buffet approach to minutes: Pay for a month up front and you can use the phone as much as you like for that time period. “From the customer’s point of view, that’s what makes the most sense, says Kirk Parsons, senior director of wireless services at J.D. Power and Associates. “It takes the confusion away from ‘How much is it really going to cost me, and what am I getting for that?’”
The main economic difference between one of the these unlimited plans and the type you might get from a mainstream network operator is that it comes without a contract, and you’ll have to pay before your month’s worth of calling, not at the end.
Although the lack of overage charges and other accidental fees helps distinguish prepaid carriers from contract carriers, that doesn’t mean there aren’t money pits. “There are some hidden fees along with the non-contracts that you have to be aware of,” says Parsons. Many pay-as-you-go plans, for instance, charge a daily access fee, whether you use your minutes or not. And those “unlimited everything” plans don’t always mean everything: For example, you might find yourself paying extra for roaming or data usage, depending on the carrier.
Prepaid and Pay As You Go Cellular Service: What’s the Catch?
So it looks like you could save a bundle by opting to go with prepaid cellular service rather than committing the next two years of your life to one of the big guys. Ready to bite? Not so fast. First, step back and look at some of the caveats.
According to Joseph Pawlikowski, a senior editor at PrepaidReviews.com, the biggest step back that most customers take with prepaid phones in terms of overall quality of customer service. “You’re not going to get the same level of customer service as with postpaid carriers,” he says. “That’s the biggest difference because it can be so important. You can be out of a phone for days or even weeks without getting a customer service resolution.” Even major carriers that offer prepaid service, like T-Mobile and AT&T, typically don’t offer the same level of support for prepaid customers, often outsourcing calls to outside call centers and using other cost-cutting tactics.
Coverage can also suffer. Very few prepaid carriers own their own networks, which typically means that they’re leasing it from one of the big guys, like AT&T, Verizon, Sprint or T-Mobile. And the only carriers that manage their own networks – MetroPCS and Cricket – aren’t as expansive in terms of coverage areas as the majors. (Headed to Virginia, Alabama or Florida with Cricket? Don’t plan on making any calls.)
Even going with a prepaid plan from a company like AT&T won’t get you the same level of coverage as postpaid AT&T customers. “With contract plans, a lot of those carriers have roaming agreements: You’re roaming off network, technically, but it’s built into your plan that you’re allowed to do that,” explains Pawlikowski. “With prepaid, you’re only working with the primary network.” The result: Many people keep their carrier and switch from postpaid to prepaid, then experience inferior coverage because they were forced to use other companies’ towers without even knowing it.
You won’t find the iPhone on MetroPCS, Cricket or Boost Mobile – or many other high-end smartphones, for that matter. Browse the selection of phones at any prepaid carrier and you’ll most likely walk away disappointed by both the selection and the price.
Unlike contract carriers, which can afford to deeply subsidize phones when they have you captive for two years, prepaid carriers have to offer phones at actual value, or with a tiny subsidy, since you can walk away from their service at any time.
But don’t think two-year contracts are getting you any bargain, either. “The consumer is paying for the phone,” says J.D. Power’s Parsons. “It’s either hidden in the contract, or you’re paying it in a one-time fee with a non-contract plan.”
Pawlikowski agrees. “With a contract, you’re signing up to repay the subsidy that you just got on the phone,” he says. “The idea is to pay back the expense over time with the contract. So with prepaid phones, there’s no guarantee. Sometimes you’ll get a subsidy on the boxed phones at Wal-Mart, but they’re very low-end phones anyway, so it’s not going to be that big a subsidy.”
Prepaid carriers don’t offer smartphones like BlackBerrys for a reason: They don’t really have the data plans to back them up. Although some carriers like Boost offer “mobile Web,” which may sound like a data plan, it’s really only access to a wading pool version of the Web where you can check sports scores or the weather, but not much else. And though a handful of carriers like Cricket offer legitimate broadband data access, at $40 a month, it’s no bargain.
“For data users, it’s really not a good solution yet,” says Pawlikowski. “Basically, there is no prepaid solution. You really have to go postpaid if you’re using a data-heavy device.”