May 19, 2010 4:00 AM PDT
Smartphones come to prepaid wireless market
The price of owning a smartphone is getting a lot cheaper thanks to some new aggressive plans from prepaid wireless companies.
Boost Mobile and MetroPCS have already been offering smartphones as part of their prepaid wireless plans. And over the next several months, other competitors, such as Leap Wireless' Cricket brand and Virgin Mobile will be adding smartphones to their lineups.
For years, the post-paid business model has dominated the U.S. cell phone market. Consumers signed lengthy contracts and wireless providers subsidized phones to the point where some handsets are even free. Meanwhile, the prepaid market in the U.S. was largely left to consumers who were young, price-sensitive, or considered credit risks. These customers paid for their cell phone service in advance and they bought the phones outright without any subsidy.
| Prepaid smartphone offerings | ||
| Major prepaid service providers | Smartphone | Service plan cost per month |
| AT&T | Not offered | Not offered |
| Boost Mobile (Sprint Nextel) | RIM BlackBerry Curve 8330 ($249) | $60 for unlimited voice, data, texting, and e-mail |
| Cricket (Leap Wireless) | Kyocera Zio (Android OS)* | Not available |
| RIM BlackBerry Curve 8530* | Not available | |
| MetroPCS | RIM BlackBerry Curve 8330 ($349) | $60 for unlimited voice, data, texting, and e-mail |
| Samsung Code (Windows Mobile OS) ($249/$174 with summer promotion) | $50 for unlimited voice, data, texting, and e-mail | |
| T-Mobile USA | All T-Mobile smartphones can be prepaid through FlexPay/Average price $400 | $60 for 500 voice minutes, and unlimited data, texting, and e-mail |
| (This includes all T-Mobile Android phones, Windows Mobile, and BlackBerry devices) | $70 for 1,000 voice minutes, and unlimited data, texting, and e-mail | |
| $80 for unlimited voice, data, texting, and e-mail | ||
| Tracfone | Not offered | Not offered |
| Verizon Wireless | Not offered | Not offered |
| Virgin Mobile USA (Sprint Nextel) | RIM BlackBerry Curve 8530** ($299) | $35 for 300 voice minutes, and unlimted texting, data, and e-mail |
| RIM BlackBerry Curve 8530** ($299) | $50 for 1,200 voice minutes, and unlimited texting, data, and e-mail | |
| RIM BlackBerry Curve 8530** ($299) | $70 for unlimited voice, texting, data, and e-mail | |
| *Leap Wireless has announced that it will introduce two smartphones for the Cricket service in the second half of the year. Pricing information is not yet available. | ||
Tough economic times have enticed many consumers to cut costs and sign up for cheaper prepaid plans. According to a recent study released by the New Millennium Research Council, a Washington, D.C.-based think tank, new prepaid wireless customers exceeded the number of new contract subscribers who signed up for service in the fourth quarter of 2009. This is the first time that prepaid services have outsold post-paid or contract services, the group said.
But cheaper cell phones only go so far. One of the biggest challenges facing prepaid wireless operators is the fact that they have lacked cool phones. For the last few years, AT&T and Verizon Wireless, the nation's two biggest cell phone providers, have used exclusive deals with cell phone makers to win customers. AT&T has the iPhone. Verizon Wireless has the Motorola Droid. But providers like Leap Wireless and Virgin Mobile were left offering basic-feature phones.
That is changing. Prepaid operators are now adding smartphones to their product portfolios, which will open the market to a new set of customers and could possibly spark a price war.
"Adding smartphones as an option in prepaid means that prepaid is no longer a compromised offering," said Neil Lindsay, chief marketing officer for Sprint Prepaid products. "Now we will be able to offer a range of products and applications that customers want, so we can compete better with traditional post-paid services."
Offering smartphones on prepaid service plans is especially important because smartphones are the future of mobile. The growth in sales of these Web-enabled devices is outpacing that of traditional-feature phones. Within the next few years, smartphones are expected to overtake traditional cell phones in terms of shipments. As consumers make the switch from feature phones to smartphones, prepaid wireless companies want to capitalize on these upgrades by offering more affordable plans than the bigger wireless providers offer.
"Smartphones unlock part of the market for us," said Al Moschner, chief operating officer of Leap Wireless. "We are trying to remove barriers. And the lack of advanced phones for a post-paid customer to become a prepaid customer was a significant barrier. Our strategy is to continue to add functionality and applications and give consumers choice so they can decide."
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