A prepaid mobile phone (also commonly referred to as pay-as-you-go or prepaid wireless or Go-Phone ) is a mobile phone for which credit is purchased in advance of service use. The purchased credit is used to pay for mobile phone services at the point the service is accessed or consumed. If there is no available credit then access to the requested service is denied by the mobile phone network. Users are able to top up their credit at any time using a variety of payment mechanisms.
The alternative billing method (and what is commonly referred to as a mobile phone contract) is the post-paid mobile phone, where a user enters into a long-term billing arrangement with a mobile network operator or carriage service provider (CSP).
Overview
A prepaid mobile phone has access to most of the services offered by a mobile phone operator, although the charges for these services may differ from customers with the same operator who have a postpaid contract.
In addition, a prepaid phone has a balance which can be queried at any time, and also topped up periodically. Examples of ways in which the balance can be topped up are:
- a credit card or debit card
- direct from a bank account using ATM machines
- in a retail store by purchasing 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.
- in a retail store using a swipe card where the balance is credited automatically to the phone after the retailer accepts payment.
Credit purchased for a prepaid mobile phone may have a time limit, for example 90 days from the date the last credit was added. In these cases, customers who do not add more credit before expiration will lose their remaining balance.
There is no compulsion on a prepaid mobile phone user to top up their balance. In order to maintain revenues therefore, 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 you top 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. In order 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) are be discontinued. The rules for when this deletion happens varies from operator to operator, but may typically be 6 months after no usage at all has been recorded for a phone.
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.
History
First US prepaid mobile phone installation
A patent for prepaid mobile phones (Patent Number 5826185) was filed on November 16, 1994.. Among the first, if not the first large metropolitan area implementation of prepaid mobile phone service in the United States was in the early 1990s at Houston Cellular Telephone Company, Houston, TX. HCTC was then an independent wireless carrier owned jointly by PacBell and BellSouth. HCTC introduced a service offering branded "calltrac" based on Voice Systems Technology, Inc.'s telephony platform with RPAC-2 billing during the first quarter of 1994.
HCTC initially offered prepaid mobile phone as a non-advertised alternative way to provide service to the more than 40% of cash-carrying, walk-in consumers who were being denied cellular service each day due to lack of credit. The plan was very expensive for the day, most subscription plans were double that of their postpaid subscribers and the prepaid subscriber still had to pay for their equipment (handsets) and anticipated call usage up front. HCTC used the Calltrack prepaid cellular program as a credit development vehicle until they developed subscriber reports intended to show that "Calltrack" was not a profitable venture.
The reports showed that a Calltrack prepaid subscriber was actually more profitable than their traditional postpaid subscribers by a huge margin. This was because, at that time it cost an average of 17% of their gross proceeds to collect on their bad debt postpaid subscribers, plus HCTC paid for all the postpaid handsets. HCTC was poised to become the first U.S carrier to go primarily prepaid, but it did not happen. Voice Systems Technology Inc. was sold to Boston Communications Group (BCGI) and the subsequent sale of prepaid cellular platforms in the US was immediately curtailed and the prepaid cellular service bureau was born. U.S Carriers spent several years trying to catch-up and develop their own solutions but patent litigation has kept prepaid from becoming the dominant form of payment.
Early Providers of prepaid services
The possibility of "prepaid wireless" in the United States actually came from Judge Green's decision to break up AT&T's monopoly. Prior the 1968 Carterfone decision, it was not permitted to connect non-Bell (Bell Labs or Western Electric) ancillary devices to the telecommunications network.
A provider of prepaid mobile phone was Banana Cellular, founded by Andrew Wise in 1993, which covered the provisioning of prepaid wireless services. Banana first sold prepaid mobile phone services in April 1993 in a small office located in Phoenix, Arizona.
The first practical implementation of prepaid wireless originated in the United States from a small group of entrepreneurs at Voice Systems Technology, Inc. The first European PAYG deployment was in Portugal in 1995 when Portuguese operator TMN deployed a PAYG solution called MIMO .
The concept was also developed by Eircell (then owned by incumbent Telecom Éireann) in the Republic of Ireland in 1997, as a method of letting different types of people (those under the age of 18, those without bank accounts and those without proof of identity) obtain a mobile phone. Originally limited to one TACS handset, costing £99 upfront, the system was an amazing success, despite the high price of calls and a 7p service charge on every operation. The system was branded as Ready To Go , a name still used by Vodafone, who now own Eircell.
The concept has since been copied in many other countries, with virtually every network in every European country supporting it. On many networks, such as Ireland's Meteor, pay-as-you-go is the main mode of operation, with pay monthly account phones being very much second-class. Conversely, in the United States, account phones offer the best features with pay as you go services being far more restricted in functionality. In developing countries pre-pay tariffs are chosen by the overwhelming majority of subscribers.
Technical evolution
Early solutions to monitor the amount of credit remaining were called "hairpin solutions". They were so called because they connected the caller in and out of a central platform to monitor usage, meaning that it took two extra dedicated trunks on the cellular switch to make one call, one for the inbound connection to the telephony platform and the second back to the switch to complete the call. Trunks were an expensive resource in a large metropolitan Mobile Telephone Exchange and switching equipment did not have the capacity that it has today, so prepaid was relegated to being the second choice for most US carriers.
Modern prepaid mobile phone solutions use an out-of-band signalling called the Intelligent Network to monitor the credit without the need for hairpinning trunks. These are developed as international standards which allow prepaid use of a phone all over the world.
Prepaid versus post-paid mobile services
Advantages of prepaid
A prepaid plan may have a lower cost for low usage patterns (e.g. a telephone for emergency use) and make it easier to control spending by limiting indebtedness. 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 18). 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 amongst students away from their home towns and travellers.
Disadvantages of prepaid
Often, pay-as-you-go customers pay more for their calls and SMS messages, and are limited in what they can do with their phone - calls to international or premium rate numbers may be blocked, and they may not be able to roam. These limitations are often due to the complexity of managing the credit system for high price calls, or when users are not on their home network.
In the United Kingdom, operators have started raising the price of pay-as-you-go phones in an effort to attract users to contract plans (which tend to earn more money than prepay overall). This has resulted in an "ON/OFF" or "All or nothing" proposition for the prepaid service providers and their clients (i.e. the account has enough credit to use the phone, or it does not). Although Orange allow their pre-pay customers to use a further £2.50 of calls or texts when the customer’s credit has been completely used. This is then deducted when the customer next adds more credit.
United States: Solution to the "All or Nothing" problem
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