Prepaid cell phones are growing in popularity in the United States. This growth is due partly to the flexibility such plans give to consumers by not enforcing a multi-year contract like many mainstream cell phone plans. Thus, prepaid cell phones won't penalize users for canceling their calling plan before a certain time period. Prepaid cell phones have also become more popular as their traditionally-higher costs have fallen. However, consumers should know evaluate prepaid cell phone plans to find the plan that works best for them.
Significance
Prepaid cell phones forced an industry-wide examination of cell phone plans and opened the market to make room for more consumer choice. Most major cell phone companies, such as Verizon Wireless, AT&T, T-mobile and Sprint, rely largely on contract-based cell phone plans for a large portion of their wireless business. These mainstream plans require consumers to sign a one, two or three-year contract. Canceling such a plan typically forces the consumer to pay a large early cancellation fee (ECF). On some carriers, this fee can be as high as $400. Prepaid cell phone plans made the cell phone industry re-evaluate its business practices by allowing consumers to purchase cell phone plans that did not require a contract. While prepaid cell phones have traditionally been more expensive than contract-based plans, prepaid cell phones have dropped in price as their popularity has grown.
History
One of the earliest versions of the prepaid cell phone business model was promoted by a company called TracFone. Based in Florida, TracFone's parent company launched the prepaid cell phone business in 1996. Three years later, the largest telecommunications corporation in Central America (Telmex) took part ownership in TracFone and helped grow the company. Since then, TracFone has become one of the largest prepaid cell phone companies. However, in the decade following TracFone's launch, most of the major cell phone carriers have launched their own prepaid cell phone divisions.
Types
Unlike the cell phone handsets offered by major cell phone carriers in relation to their contract-based calling plans, the types of cell phone handsets offered by prepaid cell phone plans are typically much more limited. In general, most handsets offered for prepaid calling plans are slightly older models released by major handset manufacturers such as Nokia, Motorola and LG. As prepaid cell phones have become more accepted, the types of models offered have also increased. For example, the prepaid cell phone industry has largely lagged behind more advanced types of technology (Bluetooth or WiFi technologies, for example). However, TracFone, Verizon and several other prepaid cell phone providers have begun selling phone models featuring these wireless capabilities.
Function
Prepaid cell phones function differently from contract-based plans. Most prepaid cell phone plans function by selling a consumer a certain allotment of minutes with various time restrictions on their use. These minutes have are prepaid and are typically in the lower range in terms of size (100 to 500 minutes). Once these minutes have been paid for, the consumer can apply the time credits to their prepaid cell phone handset. Generally, the minutes are good for a limited amount of time (such as 30 to 45 days). If the consumer wishes to keep any unused minutes, he or she must purchase additional minutes and apply them to the phone. Failing to do so will result in a loss of any remaining minutes. However, unlike contract-based cell phone plans, there is no penalty for deciding to abruptly end your cell phone service.
Considerations
Before buying a prepaid cell phone plan, evaluate your needs and your budget. Remember that the less minutes you buy at once, the more expensive each minute is. For example, companies such as Virgin Mobile may charge you up to 30 cents a minute if you buy 150 minutes or less. Generally, the more minutes you buy for your prepaid phone, the cheaper each minute is. Also take into consideration whether the prepaid phone company charges a daily access fee. This fee is common on many prepaid phone plans, but there are some carriers who don't charge it (but, in exchange, will charge more per minute). If you will not be using a lot of minutes, find a prepaid cell phone plan that waives the daily fee.
Tags: cell phone, phone plans, prepaid cell phone, cell phone plans, cell phones
