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Prepaid or Postpaid Mobile Plans?

By Dennis Jones

Prepaid vs Postpaid Mobile Plans

Maybe it’s not quite first class versus business, but for some consumers, the choice between prepaid and postpaid mobile plans can be just as thorny. Prepaid plans tend to be no contract, pay as you go, whereas postpaid plans require the subscriber to have a prior arrangement with a provider. Just like it sounds, postpaid plans bill subscribers after the fact, usually at the end of each month. In the past, that billing model also informed the type of subscriber each plan would attract. Postpaid is typically associated with higher ARPU (average revenue per user) subscribers, as the prepaid model was designed to save subscribers money. The trade-off, of course, being that prepaid subscribers generally got slower data plans in return. But that distinction no longer holds, and the question is why. Why have many of the critical differences between prepaid and postpaid plans simply disappeared?

For one, there’s been a drastic shift in actual billing. Postpaid contracts can now be rolling, changed or cancelled from month-to-month without penalty. Along the same lines, many prepaid plans are auto-renewable.

As a result, prepaid plans have lost much of their stigma, as providers have rolled out plans in different tiers with different rates and usage levels. For instance, there’s now a distinct high-end segment for recurring monthly plan subscribers that stands apart from the traditional pay-as-you go model. And to service the former, providers are offering the latest and greatest mobile devices, coaxing savvy subscribers who’re looking to avoid many of the extra fees associated with postpaid plans.

At the same time, prepaid subscribers are migrating (up) to postpaid offerings, as providers are making their postpaid plans more attractive through pricing and promotions. Postpaid subscribers still have higher ARPUs than prepaid, so it’s in a provider’s interest to migrate subscribers up the value chain. Moreover, increasing smartphone usage has also contributed to an uptick in postpaid plans, because postpaid plans usually include financing options. Nevertheless, providers are making some of their common postpaid promotions – double data promo, cut your bill in half, switching incentives, shared data plans, rollover data, handset financing – available to their high-end prepaid brands

That being said, postpaid plans do hold an advantage in the market. For instance, in the U.S., the postpaid base accounts for more than 60 percent of total connections, where the prepaid base stands at 20 percent. Things aren’t that different in the U.K., where postpaid mobile subscriptions are around 63.4 percent of total subscriptions. In the U.S., total reported prepaid revenues were up by a considerable amount, which caused a narrowing in the overall ARPU gap. In the words of Sprint CEO, Marcelo Claure: “It’s very, very, very competitive in prepaid out there; I would even call it crazy competitive.” That’s a huge departure from the mobile market was only half a decade ago.