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A new report takes a look at why prepaid cell phones have failed to catch on in the United States, despite being a far cheaper option for many consumers. Could the iPhone make it a more enticing option?
The New York Times Bits blog has published an interesting article on why prepaid cell phones have yet to catch on with many Americans. According to research firm Ovum, contract-free phone plans make up only 23 percent of wireless customers in the United States -- even though they're a much better deal for many of us.
The article uses the example of the base model 16GB iPhone, which costs $199 with AT&T under a two-year agreement, plus as much as $90 per month. That amounts to $2,360 over 24 months, compared with a prepaid plan on Virgin Mobile for the same device, which costs $650 up front for the hardware but only $30 per month -- or $1,370 over 24 months, and it even comes with unlimited 3G data.
“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,” Alekstra analyst Tero Kuittinen explains. “That psychology has worked for hundreds of years, and it’s still working.”
Of course, it's not just consumers -- carriers in the U.S. tend to shy away from marketing their prepaid offerings in favor of locking in customers to a more lucrative two-year commitment. Ironically, in almost everywhere else in the world, the situation is largely reversed, and prepaid cell phones are the preferred choice.
The lack of "cool" handsets has also been a limitation of prepaid carriers, but that's starting to change now that Virgin, Leap and Cricket landed the iPhone this summer. Ovum anticipates prepaid customers to jump to 29 percent by 2016, particularly if the economy fails to regain its mojo and consumers begin seeking less-expensive alternatives to the two-year contract.
Follow this article’s author, J.R. Bookwalter on Twitter