Is prepaid only for the credit challenged?

by Jesse

Your site talks about how great prepaid is, and that it's not just for people who can't get postpaid plans. Then why is it that so many people believe that prepaid wireless is for the credit challenged?

Is this a marketing spin, or are there real reasons why people believe that prepaid should be for people that aren't approved for postpaid? If prepaid really is the better option, how could an entire continent get it wrong for so long?

Comments for Is prepaid only for the credit challenged?

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Apr 14, 2009
Prepaid wireless IS for anyone!
by: PrepaidWirelessGuy

That's a great question. In fact, I would describe this to be the age old question! While I don't think there's one specific answer, I do have some theories that may shed some light.

It's probably helpful to first note that most, if not all other continents have higher prepaid than postpaid wireless penetration. North America is the only region that I know of where prepaid wireless has such a negative stigma.

So why does prepaid have such negative connotations in the US & Canada? I believe it has a lot to do with the fact that our culture is so strongly based on a credit system. For example, Japan is a cash-based system. Having lived there, I experienced the fact that credit card usage is minimal. While I'm sure it has increased since I was last there, it's still nowhere near what the usage is in North America.

In North America we've been trained through our upbringing that credit helps make life more convenient & easier to acquire things. Lenders rely heavily on credit scores to evaluate people's credit worthiness (i.e. financial risk) using credit scores.

People chose postpaid by default because it was the only widely available option. Until recently prepaid wasn't even a known option unless you failed the postpaid credit check. So, by default, postpaid wireless became the dominant choice.

Ironically, in the US we pay our postpaid monthly plan on a prepaid basis! Consider that when you get a new phone/plan, you immediately get a bill for the monthly fee for the upcoming month. i.e. You're prepaying for your monthly plan! It's the overages and extras (ex. ring tones, wallpapers, etc.) that are added to your bill on a postpaid basis.

Also consider that historically prepaid plans haven't offered a full suite of services, per minute pricing was very expensive compared to postpaid, and handset selection was limited and pricey. Well, over the past couple of years the per minute price and emergence of monthly and unlimited plans has brought the pricing inline with postpaid. Recently we've also seen available services approach that of postpaid and handset selection has drastically improved.

That said, there is still headway to be made on handset selection, and pricing is still somewhat of an issue. However, as technology evolves, and pricing comes down, the handset subsidy that postpaid customers get by signing contracts will be less of an advantage. Though prepaid customers will likely always continue to pay a premium. I do believe, however, that the flexibility afforded by not committing to a long term contract will result in people being willing to pay more for their phone to avoid the restrictions of being locked into a contract.

So, I believe that postpaid has dominated, and prepaid has had a negative stigma only because of circumstances. As prepaid wireless evolves, as it has in other countries, it will continue to increase in popularity.

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