U.S. phone subscribers are less drawn into acquiring prepaid phone plans, despite being able to save more.
The irony of most mobile phone subscribers in the US is that they would prefer purchasing phone plans that offer higher monthly fees rather than prepaid phone plans, which comes with terms of paying the full price for a cellphone and eventually incurring lower monthly rates without a contract.
In a report given by research firm Ovum, the total percentage of the prepaid phone plan subscribers in the country constitute 23 percent of the total wireless customers in its phone market, leaving the other 77 percent tied up into contracts and incurring higher monthly subscriptions.
It is funny to note the fact that these contract-free phone plans generally offer a better arrangement for most budget-conscious individuals, who can save hundreds of dollars for the entire two years in contrast to a contract plan.
For illustrations sake, let us take into consideration the two-year contract offer on iPhone on the AT&T network, which has a starting cost of $200 for the device alone and an additional payment of $90 per month for the plan. For the entire duration of two years, customers will incur a total of at least $2,360, which already includes the cost of the phone itself.
Meanwhile, under the terms of a prepaid plan offered on Virgin Mobile, which is a network run by Sprint, an iPhone would cost $650 for the device alone, and an additional fee of $30 per month will be charged to the subscriber with a bonus of unlimited data. This is the type of data plan that subscribers would likely be more satisfied with, according to J.D. Power. The entire cost incurred for the whole two years would only constitute about $1,370.
As to the question why people still rather go for the more expensive plan, independent analyst and Alekstra vice president Tero Kuittinen explains that the reason to blame for luring most people into these costly contracts is the subsidized price of a phone. Alekstra is a firm that aids customers in handling their cellphone bills.
Kuittinen emphasized, “Right now, consumers don’t do the math, and they have a lot of resistance to paying $500 to $600 upfront, and they’d rather pay $100 upfront and then overspend. That psychology has worked for hundreds of years, and it’s still working.”
Another evident cause is the fact that carriers are not spending much effort on marketing prepaid plans because it is a part of their strategy to entice more customers into availing contract plans.
According to another analyst, now working at Ovum, named Jan Dawson, “They deliberately don’t market their prepaid plans. They want you on postpaid plans that deliver higher revenue per user, on contracts that are going to lock you in.”
Let us take into consideration U.S. telecoms carrier Sprint, which has not started advertising the iPhone on Virgin Mobile’s prepaid plans, despite being already introduced in June. It said though that it has plans to do such strategy in the future.
Mr. Dawson also analyzed that some carriers have tight marketing budgets, like Leap Wireless or MetroPCS, which are mostly known for their prepaid plans rather than their cheaper postpaid plans, in contrast to big carriers such as AT&T and Verizon Wireless.
It is just recently that prepaid phone companies have started offering devices that are as convincing as those under a contract, like iPhone and several leading Android phones, which have only been offered through prepaid phone firms during the last few months.
Thus, it obviously concludes that it would have been more preferable to incur the burden of paying a considerable large amount from the start as it leads to higher savings. However, most subscribers would still rather pay a much larger amount, when they perceive that it is more practical to subsidize the cost.
Ovum anticipates that the total market share for wireless American prepaid customers would eventually increase to 29 percent by 2016, as prepaid plans are generally improving, and taking into major account that people are searching for ways to slash expenses during a bad economy.
Image: idealisms via Flickr (CC)