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 The prepaid market is heating up, as smaller wireless operators add smartphones to their lineup of prepaid devices. 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. **Virgin Mobile USA has announced that it will be offering the BlackBerry Curve 8530 starting May 23. Consumers can preorder it now. Source: CNET research
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."
More smartphones in '10 Leap Wireless, which sells its products through the Cricket brand, plans to offer at least two new smartphones by the end of the year: the BlackBerry Curve 8530 and the Kyocera Zio, which runs the Google Android operating system. Moschner said Leap may add a second Google Android phone to its mix near the end of the year.
Other providers have already begun offering smartphones in the prepaid market. MetroPCS has been selling the BlackBerry Curve 8330 and the Samsung Code, a touch-screen Windows Mobile phone. Boost Mobile, owned by Sprint Nextel, sells the BlackBerry Curve 8330. And Virgin Mobile, also owned by Sprint Nextel, will begin selling the BlackBerry Curve 8530 starting Monday.
The downside for consumers is that these phones are not subsidized, meaning they must pay the full retail price for the devices, which varies from about $250 to $350. Promotions are often available, though, and consumers can get certain phones for much less.
The upside of the prepaid model for consumers is that the service plans associated with the phones cost much less than comparable post-paid plans from the big carriers. Take the BlackBerry Curve offered on Boost Mobile and Virgin Mobile as an example. Verizon Wireless is running a special promotion, and the BlackBerry Curve costs only $9.99 with a post-paid plan. Buying it from Boost will cost $249 and Virgin Mobile is charging $300.
Even though the hardware cost is much lower with Verizon, Boost and Virgin Mobile are offering service plans that cost at least half as much as Verizon's plan. Boost's smartphone plan costs $60 a month and includes unlimited voice, Internet access, text messaging, and personal e-mail. By contrast, Verizon charges $120 for the same set of features for the same BlackBerry phone. … Read more