DALLAS – Two-year contracts are fine for cell-phone users who have good credit and don’t mind being tied to a single company and a single wireless plan for that long.
But what about people who don’t have the credit, the bank account or the desire to sign up for a long-term contract with the big cellular companies?
The answer for an increasing number of users: pay-as-you-go cellular service.
Parents buy prepaid service for their children. Senior citizens use it for emergencies.
Low-income people and immigrants without bank accounts pay for the service in cash.
“I think prepaid wireless is one of the most exciting things that has happened in telecom in a while,” said Judy Reed Smith, chief executive of consulting firm Atlantic-ACM.
Plan varieties
In the traditional pay-as-you-go plan, a customer can buy a card, similar to long-distance cards sold at convenience stores, drugstores and general retailers. Each card comes with a set amount of minutes, from 20 minutes to more than 1,000.
In hybrid plans, customers can have their credit cards or bank accounts charged each month to buy a set number of minutes. But they can quit anytime they want rather than be tied to a contract.
No matter what type, almost all prepaid services offer the same attractions – no contracts, no credit checks, no charges for early termination and usually no long-distance charges.
Stephen Wellman, executive director of the industry newsletter FierceWireless, said prepaid wireless began taking off when Virgin Mobile decided to bring its prepaid service to the United States.
Now most big wireless companies offer some form of prepaid service. One of the bigger players is Boost Mobile, a brand started by Nextel Communications Inc. Alltel Corp. has its Simple Freedom brand.
In 2003, 5.5 million of the 16.9 million prepaid customers came from “mobile virtual network operators” such as Virgin Mobile or Tracfone Wireless Inc., she said.
By 2009, she said the number of prepaid users will boom to 41.3 million, with 32.8 million, or about 79 percent, coming from those resellers.
Annual revenue will soar as well, she said: from $400 million in 1997 to $7 billion in 2004 to $22 billion in 2009.
New residents, youths
Smith said the cards suit callers in challenging financial situations, people who are “credit-challenged, unbanked or cost-conscious,” she said.
Many recent arrivals to the United States are flocking to prepaid cellular service for the same reasons they embraced prepaid long-distance calls. They don’t have to have a home phone number, they can take the service with them, they don’t need to establish credit and they can tie their usage to their day-to-day budget.
Gene Retske, senior editor of The Prepaid Press, said pay-as-you-go is not simply a product for people who can’t qualify for regular wireless contracts.
“The youth market is picking prepaid wireless not because they don’t have the credit for it or because they can’t afford it, but because they like the convenience of it,” he said.
“They like the ability to pick the plan that they want to pick, to pick the usage they want to use and make it fit within their lifestyle.”
Although many customers cite cost as a reason to use prepaid wireless, prepaid isn’t always cheaper.
“Prepaid long-distance grew primarily because of a price consideration: “We’ll do it for less,”‘ Retske said. “In prepaid wireless, what’s fascinating to me is that the unit prices for prepaid wireless are actually more in most cases than the unit prices are in traditional, contract-based wireless.”
Prepaid also appeals to parents who want to budget the amount of money or time their youngster uses each month or who want it only for emergencies such as an upset stomach, ripped pants or the cancellation of soccer practice.
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Many people originally signed up for cell phone service for those occasional emergencies. Many elderly use a cell phone only for that purpose, making seniors a prime target for pay-as-you-go, Smith said.
“The trouble is, the handsets stink,” she said. Many have trouble figuring out how to turn on, dial or hang up the phones.
She cited a case where a man gave his parents a cell phone. It went unused for several months until he showed them to hit the “send” button after dialing – they had tried repeatedly to use the cell phone, but they didn’t realize it worked differently from a traditional phone.
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AP-NY-03-10-05 0619EST
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