Prepaid or postpaid?: The fight for your cell phone dollars (Smartphones Unlocked)
T-Mobile's switch from a contract model to prepaid dramatically changes the no-contract game.
This article originally published 11/11/2012 and was updated most recently on 3/25/2013.
Now that, the tussle for your business between the contract and no-contract carrier model is even more urgent.
There's no question that the prepaid model is designed to save you money over a two-year contract agreement, but how much do you really gain by going prepaid, and what might you lose from the subscriber experience?
For the sake of comparison, I'm going to break down the cost of ownership over a two-year span for Verizon, the carrier with the most U.S. subscribers, and T-Mobile, which is now the country's largest prepaid network sinceand now killing off its own two-year contract model.
Samsung's Galaxy S3 makes a good model device, thanks to its ubiquity across seven carriers; the 16GB version has a $199.99 base price for most contract providers, though prices will start to drop once the hits shelves.
The first difference between the two carriers is the cost of the phone. The Galaxy S3 isn't really $200; that's the price that Verizon and the rest subsidize so you pay less up-front than a T-Mobile customer, who will pay almost $600. The trade-off for a "cheaper" Verizon phone is committing to two years of data fees no matter what, and getting slapped with a multiple-hundred-dollar termination fee if you try to leave early.
In addition, Verizon and others add an activation fee for new lines of service. If you're a new cell phone customer, or switching from another carrier, chances are good that you'll be tacking a nominal fee onto the transaction, and that adds to the phone's overall cost.
|Verizon Wireless -- Two-year contract|
|Samsung Galaxy S3 cost (16GB)||$199.99|
|Activation fee (one-time)||$35|
|Monthly access rate||$40|
|Monthly rate (4GB data)||$70|
|Access fee, 24 months||$960|
|Data fee, 24 months||$1,680|
|Two-year total, excluding taxes||$2,875|
|T-Mobile -- No contract carrier|
|Samsung Galaxy S3 cost (16GB)||$589.99*|
|Monthly rate (Unlimited 4G LTE)||$70|
|Data fee, 24 months||$1,680|
|Two-year total, excluding taxes||$2,270|
*Up-front cost equals $109.99 down payment, plus $20 per month for 24 months.
Verizon's new pooled Share Everything data plan (required for new contracts,) means you'll pay a monthly access fee for any device, on top of the monthly bundle for unlimited talk, text, and a portion of 4G LTE data. I chose 4GB of monthly data, but Verizon also offers plans for as low as 1GB per month to as high as 10GB per month.
Over two years, you'll pay almost $3,000 for the Galaxy S3 on Verizon, assuming you're activating a new line of service.
With T-Mobile's no-contract plan, however, you skip the activation fee, and the $70 unlimited monthly rate gets you all the LTE data you can eat, on top of limitless calls and texts. The old MetroPCS' LTE plans were actually $450 more economical than T-Mobile's over 2 years, with plans ranging from $40 to $70 per month, depending on add-on services. For instance, the $70 plan got you on-demand video and unlimited Rhapsody Music.
|Metro PCS -- No contract carrier (merging with T-Mobile)|
|Samsung Galaxy S3 cost||$500|
|Monthly rate (Unlimited 4G LTE)||$55|
|Data fee, 24 months||$1,320|
|Two-year total, excluding taxes||$1,820|
Regardless, T-Mobile's plan saves you $645 dollars on a Galaxy S3 over the course of two years compared to Verizon's contract plan for a new line of service.
What about family plans?
The math gets a little trickier when you factor in lines of service for multiple family members. Verizon and T-Mobile both offer pooled data plans. Verizon will sell you 2GB of data for $60 per month, and go up to 10GB of data for $100 per month, minus the monthly access fee per device.
T-Mobile's family plan rates, on the other hand, promise unlimited 4G data with no cap, and start at $100 for 2GB of data per month for two people. The cost graduates to $210 per month for unlimited data for up to 5 lines.
How low can you go?
What happens if you're trying to get the least expensive phone you can, period? Once again, a prepaid carrier may offer you the cost advantage on the lower end of the scale, too.
Although most known as a post-paid carrier, Verizon also has a prepaid branch that gives you unlimited talk, text, and Web. (Check and you'll find that each national carrier has some sort of prepaid option. In Verizon's case, there are two choices, since you can also buy phones at full retail cost and opt for a month-to-month contract.)
For the next scenario, I wanted to compare the most rock-bottom price you can get with Verizon and T-Mobile for a non-refurbished phone. Verizon's least expensive handsets are the $50and . Though simple, they have all the basics for making calls and texts.
|Verizon Wireless -- Cheapest prepaid|
|Samsung Gusto 2, LG Cosmos 2||$50|
|Monthly fee (talk, text, Web)||$50|
|Data fee, 24 months||$1,200|
|Two-year total, excluding taxes||$1,250|
|T-Mobile -- No contract -- Cheapest|
|BlackBerry Curve 9315||$168|
|Monthly fee (talk, text, Web)||$50 (includes 500MB data)|
|Data fee, 24 months||$1,200|
|Two-year total, excluding taxes||$1,368|
Verizon charges $50 for unlimited talk, text, and Web, though you won't use much Web on a phone like the Gusto 2 or Cosmos 2, and that saves Verizon money in the end. The $1,250 total for two years of ownership is pretty low.
I likewise searched T-Mobile's Web site for its least expensive offering. Since T-Mobile is dealing only in new smartphones at the moment, the BlackBerry smartphone costs three times more. However, refurbished phones match Verizon's cost of about $50 ($48, actually) for theand .
T-Mobile's third option: Bring your own
Borrowing from a popular global option, T-Mobile will also provide wireless service for unlocked handsets you bring in yourself, including an AT&T iPhone.
Seventy dollars gets you unlimited talk, text, and data for one person. A two-line plan costs $60 per line per month, or $120 total per month. T-Mobile is especially gunning for unhappy AT&T customers.
What about MVNOs?
Carriers with storefronts aren't the only options. You can also find great deals with MVNOs, Mobile Virtual Network Operators. MVNOs are services that resell other operators' spectrum, and prices go as low as $30 per month without a contract. TracFone is the largest, and owns StraightTalk, a Wal-Mart exclusive that resells AT&T, Sprint, T-Mobile, and Verizon.
Ting and Credo Mobile ride Sprint's network, as do Sprint's own prepaid Virgin Mobile and Boost Mobile brands. PureTalk sells AT&T; Net 10 rides AT&T, T-Mobile, and Sprint; and Simple Mobile resells T-Mobile service.
Getting the phone you want
As with the handsets themselves, no carrier offers a one-size-fits-all solution.
No-contract providers are simpler and less invasive: there's no service agreement and sometimes no credit check (T-Mobile does require this.)
You can also often pay in cash at a retail store, so a credit card isn't required. Since there's no contract, there's also no fee for stopping service sporadically or switching providers any time you want.
Selection is one more major drawback; you can't always be as choosy about what you get. Verizon and AT&T's prepaid services are usually limited to flip phones and other simple devices, but with T-Mobile's new move, all that's changing.
On other contract-free carriers, quality midrange Android phones can easily cost $300 without a contract, but the features will often pale in comparison to the most coveted smartphones on the market.
The good news is that the more major prepaid carriers are snagging popular smartphones like the iPhone 5 and the Samsung Galaxy S3, but these will come at the full retail price, which is a larger sum up-front.
It's all about the network
When you're considering which carrier to pick, you should always think about the network speeds and services you can expect. The old Metro PCS worked best in urban centers, so if you traveled a lot to the country, you may have found your call quality and ability to stream data heavily compromised. T-Mobile's extensive nationwide network nips that problem in the bud. Some other networks, like MVNOs, have national partnerships, but you'll want to check on coverage before committing.
Another thing to note is that not every network is created equally. Verizon and T-Mobile will both be able to offer various 4G speeds, but some, like Cricket, still.
All the extras
Post-paid national carriers like AT&T, Sprint, and Verizon can also afford to offer you greater support when it comes to in-store attention and customer service, in addition to intangibles like a more alluring brand appeal. As a new prepaid carrier, T-Mobile can match that, though smaller outfits don't have the operating budget to staff quite as many stores or call centers.
Is switching worth it?
If saving money is important to you, I urge you to explore a prepaid option. Up-front costs will be higher, but in the long term, you can curb your spending if you stick with your original phone. If you don't like it, there's no penalty for going back to contract, and you can cut your losses by selling off the other carrier's phone.
It used to be that if a premium experience is what you want, a prepaid carrier would only frustrate. T-Mobile's track record as a postpaid carrier portends good things when it comes to friendly and attentive customer service, robust network coverage, and a large selection of current phones. However, we can only wait and see how it handles the transition.
Especially with T-Mobile's bold no-contract move, we're seeing the prepaid segment heat up with better phones, more aggressive offers, and interesting services like Cricket Wireless' Muve Music plan.
The bottom line is that to get the best deal, you're still going to have to put in the time to research your options -- including the carrier's coverage zones -- and sit down to do the math.
What's your personal experience with prepaid carriers: good, bad, indifferent? Share them in the comments.
Smartphones Unlocked is a monthly column that dives deep into the inner workings of your trusty smartphone.