A prepaid mobile device (also commonly referred to as pay-as-you-go (PAYG), pay-as-you-talk, pay and go, go-phone, or prepay) is a mobile device such as a phone for which credit is purchased in advance of service use. The purchased credit is used to pay for telecommunications services at the point the service is accessed or consumed. If there is no credit, then access is denied by the cellular network/Intelligent Network. Users can top up their credit at any time using a variety of payment mechanisms. (“Pay-as-you-go”, “PAYG”, and similar terms are also used for other non-telecommunications services paid for by advance deposit.)
The alternative billing method (and what is commonly referred to as a mobile contract) is the postpaid mobile phone, where a user enters into a long-term contract (lasting 12, 18, or 24 months) or short-term contract (also commonly referred to as a rolling contract or a 30-day contract) and billing arrangement with a mobile phone operator (mobile virtual network operator or mobile network operator).
A prepaid mobile phone provides most of the services offered by a mobile phone operator. The big difference is that with prepaid phones, payment for service is made before use. As calls and texts are made, and as data is used, deductions are made against the prepaid balance amount until no funds remain (at which time services stop functioning). A user may avoid interruptions in service by making payments to increase the remaining balance.
Methods of payment
- Credit card, debit card, or online payment processor.
- Direct draw from a bank account using an ATM
- Retail store purchases with a “top-up” or “refill” card at retail. These cards are stamped with a unique code (often under a scratch-off panel) which must be entered into the phone in order to add the credit onto the balance.
- Retail store purchases using a swipe card where the balance is credited automatically to the phone after the retailer accepts payment.
- Retail store or online purchase: a person can top-up a prepaid phone in another country by asking for an “international top-up”. Often, migrant workers will send prepaid top-ups internationally as a form of support.
- Other mobile phones on certain networks provide international top-up services, where the initiator of the top-up is often a migrant worker wanting to add minutes to the prepaid mobile phone of a family member back home.
- Direct from some open-loop prepaid cards featuring a mobile refill service.
- Through electronic reloading where a specially designed SIM card is used to reload a mobile phone by entering the mobile number and choosing the amount to be loaded. This process is widely implemented in the Philippines and India so that any person can be a prepaid load retailer, creating a nationwide availability of reloading stations, even in remote areas.
Credit purchased for a prepaid mobile phone may have a time limit – for example, 120 days from the date the last credit was added. In these cases, customers who do not add more credit before expiration will have their remaining balance depleted through the expiration of the said credits.
There is no compulsion on a prepaid mobile phone user to top up their balance. To maintain revenues, some operators have devised reward schemes designed to encourage frequent top-ups. For example, an operator may offer some free SMS to use next month if a user tops up by a certain amount this month.
Unlike postpaid phones, where subscribers have to terminate their contracts, it is not easy for an operator to know when a prepaid subscriber has left the network. To free up resources on the network for new customers, an operator will periodically delete prepaid SIM cards which have not been used for some time, at which point, their service (and its associated phone number) is discontinued. The rules for when this deletion happens to vary from operator to operator, but may typically occur after six months to a year of non-use.
By 2003, the number of prepaid accounts grew past contract accounts, and by 2007, two-thirds of all mobile phone accounts worldwide were prepaid accounts.
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A prepaid plan may have a lower cost (often for low usage patterns e.g. a telephone for emergency use) and make it easier to control spending by limiting debt and controlling usage. They often have fewer contractual obligations – no early termination fee, freedom to change providers, plans, able to be used by those unable to take out a contract (i.e. under age of majority). Depending on the local laws, they may be available to those who do not have a permanent address, phone number, or credit card. This makes them popular among travelers and students away from their hometowns. Additionally, they are popular with parents who wish to have a way to stay connected with their college-age students and have some control over the costs.
Sometimes, pay-as-you-go customers pay more for their calls, SMS, and data, than contract customers. In some cases they are limited in what they can do with their phone – calls to international or premium-rate telephone numbers may be blocked, and they may not be able to roam. These limitations are usually the results of deficiencies in the prepaid systems used by the wireless carriers as technology has evolved to the point where all this is easily managed by triggers or APIs to third-party solution providers (data, international LD, content, roaming). Current models being deployed by wireless carriers are capable of setting the price points for all services on an individual basis (via packages), such that higher pricing is a marketing decision. The days of higher pricing being due to more expensive network costs are no more true.
Usage of prepaid cellphone services is common in most parts of the world. Around 70% of customers in Western Europe and China use prepaid phones with the figure rising to over 90% for customers in India and Africa. 23% of cellphone users in the United States of America were using prepaid service as of 2011, a share that’s expected to rise to 29% by 2016. Prepaid SIM cards are also becoming a variation of the traditional prepaid cellphone plans. Rather than needing to purchase an entirely new phone, existing phones can be used by simply replacing the SIM card within the device. Prepaid Service has also evolved to include rate plans and buckets traditionally seen in postpaid plans but with a lower cost of ownership for the network operator. Such Advance Pay plans are often monthly plans with either Unlimited Voice/SMS/MMS (or monthly buckets for some of these) and Prepaid Data Volume Add-ons and Throttling mechanisms. Primal Technologies, for example, allows buckets to be dynamically created by the MNO to target specific subscriber niches (e.g. those who call/text to certain countries) or for promotions. The same company also introduced a Daily Usage plan into several network operators in emerging economies, which charged the prepaid account a flat rate (e.g. $3) only if an outbound call/SMS was placed or Data was used on any given day. Otherwise, on non-usage days no fee is charged. Generally speaking, the advantage with prepaid mobile phone charging service is that often since such rate plan tweaking described above can often be implemented “on-the-fly” by the network operator, there are no call detail record processing and invoice format changes that would often be required for postpaid offerings.
Even if you have a smartphone, a prepaid phone can come in handy in emergency situations. The FCC requires that every mobile phone can dial 911, regardless of data or cost. If your main phone dies, prepaid phones can be a good way to place emergency calls. With the extended battery life, it can also be a useful item to keep on hand in an emergency kit.
Prepaid or “burner” phones are affordable, throwaway cellphones often used on a temporary basis. Not all wireless users require a high-performance mobile device, a permanent phone number, or a device fit for long-term use. But there are advantages to these prepaid phones.
Many wireless users own a smartphone and have a contract with a carrier. Prepaid phones appeal to people who want a temporary phone without advanced capabilities or contract commitments. They typically resemble older mobile models and are usually limited to text and talk. They won’t have touchscreen interfaces and they use a standard keypad for input.
The term “burner phone” often carries a negative connotation because of its association with a crime in movies and television. But prepaid phones have practical benefits for all consumers stated in the advantages, but nevertheless, their limitations must not be overlooked.