Prepaid Cellphones Are Cheaper. Why Aren’t They Popular?

Prepaid phone plans, where you pay the full price for a cellphone and then pay lower monthly rates without a contract, seem to offer what most budget-conscious people want. So why haven’t they really caught on?

The bait that reels most people into more expensive contracts is the subsidized price of a phone, said Tero Kuittinen, an independent analyst and a vice president of Alekstra, a company that helps customers manage their cellphone bills. “Right now, consumers don’t do the math, and they have a lot of resistance to paying $500 to $600 upfront, and they’d rather pay $100 upfront and then overspend,” he said. “That psychology has worked for hundreds of years, and it’s still working.” There are less obvious reasons, too. Another factor is that carriers aren’t marketing prepaid plans as heavily because they want more customers on contract plans. Finally, until recently, prepaid phone companies haven’t offered handsets that are as compelling as the ones you can get with a contract. Only in the last few months did the iPhone and some big Android phones become available through prepaid phone companies.