Budget-minded cellphone users switching to prepaid plans

  • By Marc Lifsher Los Angeles Times
  • Saturday, February 23, 2013 8:20pm
  • Business

Philip Hsiang and his wife, Mary Ann, used to pay almost $1,000 a year for a pair of cellphones under a family plan contract.

But as recession gripped the economy a few years back, the Davis, Calif., couple opted for low-cost prepaid phone service and never looked back. They shaved $800 off their annual phone bill, even though Hsiang could easily afford the pricier plan on his salary as an electrical engineer.

“As a Chinese immigrant to the U.S., it’s a virtue to be frugal,” Hsiang said. “Wasteful spending is a bad thing.”

Like the Hsiangs, millions of American cellphone users fed up with soaring bills are flocking to prepaid plans. Long a lifeline for low-income consumers and people with bad credit, these phones have become one of the hottest performers in the U.S. wireless market.

Total U.S. prepaid subscriptions shot past 100 million as of June, growing by 12 percent over the previous year, while traditional wireless telephone services with monthly bills remained flat. About 1 in 3 U.S. cellphone owners now opt to pay as they go.

Prepaid service has come into its own because of a trio of customer-friendly factors: The cost sometimes is less than half that of a traditional billed service; there’s no restrictive contract or hefty early-cancellation fee; and some high-end providers offer smartphones with unlimited Internet, text and roaming capabilities that weren’t available previously.

“It’s not your father’s prepaid service. It doesn’t have the same stigma it used to,” said Jeff Blyskal, a senior editor at Consumer Reports magazine. “It’s a legitimate option for consumers who want to save money and have good service and no contract.”

This prepaid boom has traditional cellphone companies scrambling for a piece of the action. The big four national firms — AT&T Inc., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA — have upgraded their offerings with the addition of options for high-speed data downloading and other features popular with tech-savvy customers.

In addition, a slew of smaller players, including Virgin Mobile, have entered the fray with pay-as-you go smartphone plans for as low as $35 a month.

But the biggest U.S. prepaid company, with just over 21 million customers, is TracFone Wireless Inc. The company is a subsidiary of Mexico’s America Movil, owned by Mexican mega-billionaire Carlos Slim, who is leveraging his long experience in Latin America north of the border.

The move toward prepaid cellphone service in the United States is starting to mimic the pattern that has long been the rule in the developing world. Prepaid accounts for 95 percent of cellphone handsets in India, 80 percent in Latin America, 70 percent in China and 65 percent in Europe, according to Chetan Sharma, an Issaquah-based wireless consultant.

Growth is spurring a wave of international mergers. TracFone Wireless Inc. is acquiring Simple Mobile of Irvine, Calif., while Deutsche Telekom’s T-Mobile plans to merge with MetroPCS. Japan’s Softbank Corp. is buying a 70 percent stake in Sprint.

The U.S. switch to prepaid accelerated during the recession as nervous consumers decided not to get bogged down with lengthy contracts and phone charges they couldn’t predict.

“They didn’t want to cut their cellphones in tough economic times,” said Jennifer Fritzsche, an analyst with Wells Fargo Securities.

Since then, many companies have begun to offer upscale handsets using 4G networks. That’s helped prepaid shed its reputation for low-cost, hard-to-track phones favored by drug dealers on television crime shows. “Burner phones” are hard to trace because their SIM cards — memory chips that activate the handset — can be purchased off a store shelf for cash, and the new owner doesn’t need to sign a contract or get a credit check.

Prepaid has “moved quickly into the smarter phones with more sophisticated users and is really challenging the market,” said Sam Simon, who follows telecommunications issues at the New Millennium Research Council in Washington.

Still, the monthly cost of a prepaid phone plan can run as low as $20 every three months for bare-bones, 60 minutes of voice service with a $10 handset offered by TracFone. Per-minute costs drop with added usage, and unused minutes can be banked for future local or long-distance calls.

“It’s cheap. I can talk for half an hour and don’t have to worry,” said TracFone customer Barri Clark of Los Angeles. The retired Screen Actors Guild employee said she doesn’t like to spend too much time on the phone. “For me, this is perfect as long as it’s going to be reliable,” she said.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.