By Jaime Rivera | August 14, 2012 6:29 PM
It’s funny to ever consider that a Third-World region could ever teach anything to those more developed countries, but believe it or not, there are some minor cases where it does happen. One of those is in how poor countries handle phone plans. See, in places like Latin America, it’s hard for people to keep a healthy credit record, or even to maintain the habit of paying bills on time. It’s just common for the public to not worry about the consequences. Phone carriers did their best to push post-pay plans over a decade ago, but they soon realized that each market and society circumstance requires a specific approach, and they needed to find better solutions to avoid risk.
I was a post-pay customer for years, and it mainly had to do with the fact that I always got a great and subsidized phone and lots of unlimited services that amounted to around $100. At times when carriers would charge full dollar figures for just 1 Kb of data, getting a decent plan was a must.
Recently though, I began to notice a dramatic change in the market. As the economical recession hit a big portion of our society, lots of people were faced with the terrible choice of either being late on their plans or simply lose their credit as they attended more important priorities. Carriers began losing money and gaining lots of debt they would never be able to claim. They did, however, react in the same way third-world countries did years ago, which in my opinion is one of the smartest moves in the industry. They began to make prepaid a no-brainer.
Post-paid systems made sense 15 years ago when cellphones weren’t ubiquitous. It’s really hard to convince somebody to use something they haven’t needed before. The phones and the plans were so expensive, that the only smart way to help users adopt it was helping them pay for the cost through a contract. That would also avoid the risk of abandonment since hey, a contact is a contract.
The reason why 2-year contracts have become obsolete is because people already need a cellphone. Try leaving your house without it and share your stories on how you did the craziest thing to go back and get it. With the way our economy is slowly struggling to get back its feet, prepaid is truly a no brainer for carriers. They no longer have to invest in making sure people pay their bill, and they get cash in advanced for a service they still haven’t given you. For those of you that majored in business just like I did, you understand what a positive impact that is on cash flow over a cost you still don’t have.
Let me share with you the reasons why I decided to go prepaid over a year ago, and why I’m not going back:
Prepaid is cheaper
This is simple mathematics. If we considered AT&T as a benchmark, a subsidized iPhone 4S costs $199 with a 2-year contract that costs you at least $39.99 of air time and then it’s $30 for a limited data plan. If you add the $36 activation fee, you’re looking at an initial cost of $235 and then you get to pay $70 a month for 24 months. Your total cost of ownership, hoping you never exceed any plan, is of $1,915 and notice I didn’t add taxes in this whole exercise. I haven’t added messaging which is an extra $20 a month, plus another $7 in phone insurance. You’re looking at no less than $100 a month, which adds to $2,500 every two years just to keep in touch.
If you were to go Prepaid, a carrier unlocked iPhone 4S will cost you $650 and then unlimited talk, messaging and data costs $50 a month. That’s it! Talk about going from a full paragraph of analysis to just one sentence. Your total cost of ownership is $1,815, but you don’t have to use the unlimited $50 plan if you don’t need it. You have the right to choose every month, and that can also save you money. If the expense of the phone is your problem, you could choose to finance the phone through Apple or even your credit card. You already have $235 to give as a down payment (since you no longer pay for a non-subsidy), and then with the $50 you’ll save from going prepaid, you can certainly finance and pay for the phone in less than 6 months.
If you were to do an even smarter move, and get yourself the unlocked Samsung Galaxy Nexus at just $350 at the Google Play store, you could shave a lot of extra money from that plan I just gave you.
Prepaid is smarter if you go GSM
Let’s be clear about one thing, Prepaid makes sense on GSM. Sadly Verizon and Sprint won’t let you do a lot of phone swapping or even traveling with their phones without killing you with fees, so the secret is to do this on a GSM network. If you travel a lot, my advice to you is to go for an AT&T compatible device since T-Mobile phones don’t always give you 3G data speeds abroad. I’ll give you a perfect example of how I handle my plans:
When in the US, I use the $50 all you can eat service from AT&T. I recently went to Barcelona for MWC and spent just €10 for a week’s worth of prepaid all you can eat. I travel to Latin America and you can find all you can eat plans for just $25 a month in just about every country. The best part of it all is that I did all this traveling with the same device. No need to buy any cheap prepaid phones when you go the carrier-unlocked route.
The bottom line
Carriers haven’t told you this, but they prefer that you go prepaid. They’ll get your money before you spend it, and they’ll save up on having to purchase a ton of stock devices from OEMs to get you to sign-up. Obviously they can’t tell you that they want you to go prepaid, because they make a ton of more money from you if you stick with the post-pay system.
Don’t be afraid of going prepaid. You may find it tough to buy the phone at first, but you could always just go prepaid with your current phone after your contract ends. Give yourself six months with this system and save-up the extra cash you were spending on the plan, and then use that money to get yourself a better phone. If you think of it, this system would even allow you to get a new flagship phone every year if you’re smart about saving what you’re saving. Another definite caveat with the system is that you’ll probably not get the data speeds you get on a post-paid plan, so you’ll have to pick your poison.
Some good advice I can give you is to do this with an iPhone. I’m not trying to make a fanboy out of anybody, but there’s a big reason getting an iPhone is smart and that’s Apple’s Genius Bar. See, the problem with going prepaid is that you have no insurance over the phone. If you bought a Samsung device, it’ll be hard for you to get Sammy to want to fix your phone when the problem exceeds the limit of your warranty. The great thing about iPhones is that for a fee, you can get your iPhone replaced for a brand new one, even if you got it wet and out of warranty. You’ll pay $120 for a 16GB iPhone to get replaced, which sure beats having to pay a full phone if you were the one who screwed up.
If you already live in the prepaid world that I do, make sure to share your impressions on this system in the comments down bellow. I honestly have no complaints, but I’m sure my case can be different to yours.