The cell phone industry has shifted in the past several years. Even though the overall cell phone market remains a growth industry, traditional post-paid plans are now diminishing in total current market share. Postpaid programs are rapidly being replaced by less costly prepaid cellular phones.

The two basic varieties of phone service plans are prepay and contract plans. With prepay, you pay for your airtime ahead of time. With contract plans, you pay for your minutes after you’ve used them. Contract programs require a credit verification because you are essentially using your minutes on credit.

The cell phone marketplace has grown each year since its beginnings, and the overall sector continues to grow. In The United States, over 80% of the public at this point use cell phones. That trend is growing, though substantially less quickly today than in prior years.

Traditional contract cell phone programs have been the prime segment within the mobile phone market and that sector has increased every year. However, in 2008 the growth trend of contract plans began to slow. From 2008 to 2009 the total additions of new contract plans fell 58%. In 2009 contract subscriber growth in fact reversed and the industry share is now getting smaller.

In the mean time, new prepaid subscriptions are expanding. In 2008 in excess of 50 percent of brand new cell phone users decided upon prepaid mobile phone service. The following year, in 2009, in excess of 80 percent of new cell phone subscription growth came from prepaid service plans.

In the past, prepaid service plans were used by two kinds of consumers: teens and people with bad credit. Since classic postpaid programs call for a credit check, some people were incapable of purchasing a standard postpaid plan. In the past, those people with bad credit or even no credit history composed the majority of the prepaid user base. The one negative aspect of prepaid plans, up until just recently, was that prepaid cell phone plans were much more expensive in comparison with postpaid programs.

Two years ago the price tag of prepaid plans started to drop. Currently prepaid cell phone service plans are substantially less costly than post-paid service plans. Quite a few prepaid providers are even providing unlimited airtime plans that are less expensive than equivalent post-paid service plans that have 500 minutes of airtime. The present affordability of prepaid programs and the economic recession are fueling the intense progress of the prepaid cellular phone market.

As expected, the cell phone companies are not completely happy with this, given that they earn significantly more profit on contract programs when compared to prepay. There are several reasons for this is. The first is that contract programs are more expensive than prepay plans. Classic contract plans can run in excess of $80 a month whereas a prepay plan with comparable airtime could be as inexpensive as $40. Second, not only do contract plans earn more profit for the cell phone companies, but they have a risk-free income stream by locking their customers in with long-term contracts. The 3rd reason contract programs are so cost-effective for the cell phone companies is that they outrageous fees if you exceed your minutes allocation, usually 25 or 50 cents for each minute. This can add up rapidly and many folks have accidentally run up huge cellular phone bills because they went over their minutes.

Obviously, with prepay service plans, you don’t have these problems. Prepay programs are now less expensive per minute and they don’t require service contracts. In addition, should you exceed the airtime that you have paid for, it is easy to just purchase more airtime.

Postpaid programs continue to be preferred by consumers, though. The major justification is that the phone handsets that come with contract plans are more affordable, at least in the beginning. Many consumers continue to choose postpaid plans due to the fact they can not afford a $400 mobile phone. The phone carriers subsidize the cost of the handset when buyers sign a 2 year contract. In comparison, prepaid models are usually more expensive given that none of the price is subsidized. Customers have to pay for the entire price of prepaid handsets. What purchasers do not realize is that the contract plans are able to pay for the price of the phone since they fully understand that over the course of a two year contract they’ll make up the price of the handset.

Pay as you go programs continue to gain market share, though. They simply make more sense financially for purchasers. The economy has been bad for some time and there’s no upturn on the horizon. The lower general price of prepaid phone plans will continue to make them more attractive and even more customers will go for prepaid programs over the traditional post-paid plans.

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