by Clara Michaelis

Created on: June 28, 2008   Last Updated: July 14, 2008

Recently, The Wall Street Journal reported that one billion extra people would be using wireless handsets by 2011. Did you know that most people outside the U.S. pay for their wireless phone service on a prepaid basis, rather than locked into a term contract? Prepaid cell phones are now popular in the United States. No longer wireless's poor stepchild, prepaid-only carriers such as Virgin Mobile and TracFone have gained respectable market share, while the "big four"(AT&T, Sprint, Verizon, and T-Mobile) now offer prepaid or flat-rate plans in addition to standard contracts.

Prepaid mobile plans are attractive to users for several reasons: no credit checks, bank accounts, and credit cards needed; minutes are easy to refill; and cancellations are no problem. Military, retirees, students, and immigrants have traditionally formed the customer base of prepaid plans. These folks need any or all of the following: easy startup and cancellation, low usage and operating costs, text messaging and streaming media capability, and low international rates. How well do prominent non-contract plans meet these needs? And what do existing contract users need that a prepaid plan could fulfill just as well?

Starting and cancelling service is never an issue for strictly prepaid carriers. The biggest true prepaid carrier, TracFone, offers simple phones and sells refill increments via large discount retailers, grocery stores, and online. Military members, migrant workers, and others on the move find this convenient. The next tier of non-contracted wireless service, often called "pay as you go," is still much easier to get out of compared to contract plans, but the big four encourage customers to sign up for monthly pay-as-you-go service with a bank debit or credit card, moving this option down a notch on the ease-of-access and cancellation scales.

Retirees and parents of high school or college students who want a simple phone for occasional or emergency travel use ("voice-centric" customers, in industry-speak) are happy with TracFone because they aren't charged for bells and whistles they never use. Even though the per-minute rate on a 60 minute TracFone is approximately 33 cents (three times higher than most non-contract plans), voice-centric people who don't call out much will still pay less than with a contract. With TracFone, it's possible to get by for three months on $19.99, which gets you an hour of talk time. Combine with their cheapest phone at $14.99 and the plan pays for itself

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