How Prepaid Cell Phones Work

By: Diane Dannenfeldt

Prepaid cell phones are a great way to monitor teens' phone usage.
Prepaid cell phones are a great way tomonitor teens' phone usage.
©­ Photographer: David Davis | Agency: Dreamstime

If your chatty preteen daughter wants a cell phone but you're dreading huge monthly overage charges, a prepaid cell phone may be for you. It could also come in handy if:

  • you want a no-frills phone for occasional use
  • your credit record is less than stellar
  • you want to look before you leap into a two-year contract

Prepaid phones provide the basic services of regular cell phones. However, there's no long-term contract requirements or overage charges for minutes that exceed the monthly plan. And, signing up is easy. You can find a cheap, prepaid cell phone at retail outlets, electronics or discount stores -- or even through major carriers like AT&T (formerly Cingular), T-Mobile and Verizon, who've added prepaid options to their plan mix.

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You'll find that a prepaid cell phone works just like any other, although without a long-term commitment and some of the bells and whistles. You buy a cell phone with a set service (number of minutes usable over a certain number of months). You can make calls or even text and picture message, depending on the phone's features, until you run out of minutes. When that happens, you can buy more minutes immediately or within a time limit. Or you can just stop using the phone.

What are the advantages of prepaid cell phones? How do the calling plans work? And, who are the carriers? Check out the next page to find out more about prepaid cell phones.

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Advantages of Prepaid Cell Phones

­Some prepaid cell phone plans allow users to send and receive text messages.
­Some prepaid cell phone plans allow users to send and receive text messages.
© Photographer: Simone Van Den Berg | Agency: Dreamstime

The main advantage of prepaid cell phones is the combination of freedom and control that they offer. With a prepaid cell phone, you're not locked into a multi-year plan with a set number of minutes per month during specific calling times, additional charges if you exceed the limit and a costly fee if you break the contract. You're free to talk whenever you want, as long as you want, until you run out of minutes. And you don't have to pay a monthly bill.

Talking more one month and less the next makes no difference, and leftover minutes roll over from one month to the next. Plus, if you want to change to a different type of plan, a prepaid phone gives you the freedom to switch whenever you want.

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These advantages make a prepaid phone work particularly well for:

  • Parents of teenagers. If you don't have any minutes left, you can't make calls or send text messages, although you can still call #999 for emergencies and, with some phones, receive messages stored until you have the minutes to view them. Parents can buy a cheap cell phone for a teen and a card per month for a set number of minutes, leaving the teen to budget use and pay for additional minutes.
  • Occasional cell phone users. If you only use a cell phone for emergencies and perhaps a few calls a week, you don't need a fancy phone or a complicated billing plan. A prepaid phone may work well, but make sure you know about any time limit on unused minutes.
  • Short-term users. Buy it, use it on vacation or while your regular cell phone is missing or broken -- and then throw it away.
  • Trial users. Before committing to a long-term cell phone plan, use a prepaid phone for a month or two to gauge what your (or your teenager's) actual usage will be. Then you can find a plan with the minutes and calling times to match.
  • Young adults and others with no credit history or credit card debt. Buying a prepaid cell phone doesn't require a long-term contract and credit check, so students with part-time jobs or older adults with no use of credit or a less-than-perfect credit record can get a phone easily.

Because they don't require a contract, prepaid phones are fast and easy to buy. They also are available at many locations, ready to use immediately and even disposable.

Next, let's look at some of the problems with using prepaid cell phones.

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Problems with Prepaid Cell Phones

Prepaid cell phone plans require users to monitor usage so they don't run out of minutes.
Prepaid cell phone plans require users to monitor usage so they don't run out of minutes.
©­ Photographer: Raycan | Agency: Dreamstime

While a prepaid cell phone offers many advantages, it also can present problems for its users. One of the biggest problems is the cost per minute, a serious disadvantage for anyone who talks a lot on a cell phone.

With increased interest in the prepaid market, prepaid phone rates have dropped and plans improved. Prepaid provider Boost Mobile, for example, offers a flat-rate, monthly unlimited talk plan for $45 in some states. In most cases, however, per-minute rates still usually are lower with traditional contract plans [source: TMCNet].

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Here are some other disadvantages with prepaid cell phones:

Expiring minutes and service -- The minutes you buy for your prepaid cell phone may come with an expiration date of 30 or 90 days. If so, you'll lose them if you don't use them by then. You also may need to buy minutes regularly to extend the activation period. Buying 60 minutes for $20, for example, might extend your service for another two months [source: Wireless Guide].

Unexpected fees -- With a prepaid cell phone, you won't pay monthly taxes or termination fees as with traditional plans, but you may find other unexpected fees -- or higher fees than you'd expect for extra services. You may be charged a daily access fee of 99 cents to $2 for days you use the service or for every day. You also may be charged for roaming, sending text messages or photos, downloading ring tones or games and accessing the Web [source: CNET].

Limited features -- You probably won't find the latest, most sophisticated features on the average cheap prepaid cell phone. It probably won't be a picture phone. It also won't have Internet access or the ability to share videos. However, some companies are offering more high-tech phones. Virgin Mobile, for example, offers phones ranging from basic to those with mobile Web, camera with flash, audio and picture messaging, Bluetooth wireless and mobile instant messaging and e-mail.

Untransferrable phone number -- If you switch to another phone carrier, you probably won't be able to transfer your prepaid phone number. Worse yet, if you allow your prepaid cell phone to deactivate by not using it or buying minutes within the prescribed time, you'll probably be assigned a new number when you reactivate it. That means having to notify everyone about your new number [source: HubDex].

Next, let's take a closer look at prepaid cell phone plans and how to go about finding the right one for your needs.

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Prepaid Cell Phone Plans

Virgin Mobile's basic prepaid plan gives users the Aloha cell phone.
Virgin Mobile's basic prepaid plan gives users the Aloha cell phone.
Image courtesy of Virgin Mobile

When you start looking at prepaid cell phone plans, you'll find a lot of variations. You can, for example, buy a phone with basic service and then just add minutes as you need them. You can select a more high-tech phone with added features and services, and you can buy larger bundles of minutes to get them more cheaply. You also can choose a prepaid phone contract that's almost a hybrid of a prepaid plan and a traditional monthly plan. Let's take a closer look at examples of each.

Pay-as-You-Go

Virgin Mobile offers a $14.99 LG Aloha phone with mobile Web, text messaging, ring tones and games. You need to spend $20 every 90 days to keep the phone activated. Calls cost 10 cents per minute to or from other Virgin Mobile phone numbers and 20 cents per minute to everyone else. On the high end, you can get get a SliderSonic phone for $79.99 (with $19.99 free airtime) that also offers an MP3 player, camera with flash, video recorder and playback, picture messaging, Internet access and a flash drive memory slot.

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T-Mobile's To Go prepaid phone starter kits start at $29.99 for a Nokia 2610 phone with headset and speakerphone; AOL, Yahoo, MSN and ICQ instant messaging; text messaging; call waiting, caller ID, voice notes and a calculator. Whenever minutes start at 30 minutes for $10. For the tech conscious, T-Mobile offers the Motorola RAZR V3 phone at $99.99 with quad band world phone, Bluetooth wireless, camera, video, voice recorder, phone book, clock and calculator.

Monthly Plan Options

TracFone's fairly simple 50 Minutes Value Plan automatically adds 50 minutes and 30 days of service to your prepaid phone every month for $9.99. If you need more, you can add minute bundles of 50 (for $10) or 100 (for $20). You have to sign up for the plan with a credit card or checking account number, but you can cancel at any time.

ATT's GoPhone offers monthly plans ranging from $29.99 to $69.99 with a balance rollover on minutes and nationwide long distance. The cheapest plan provides 200 anytime minutes at 15 cents each, while the most expensive plan offers 650 minutes at 11 cents each with unlimited mobile-to-mobile and night and weekend calling. As with TracFone, payment is automatically deducted from a credit card or checking account.

Start with the plan, not the phone, experts advise. Then look at the service quality you can expect to receive from the plan in your area. Finally, whether you choose true pay-as-you-go or a monthly plan, look closely at charges as well as minute rates. These may include:

  • A daily fee applied every day or on each day you use the phone
  • A roaming charge outside a certain area
  • Fees that vary based on the time you use the phone
  • Added charges for services such as text messaging, sending pictures or using the Internet

[source: ConsumerAffairs.com]

Once you've picked your plan type, the next decision is which provider to use. Let's look at that next.

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Prepaid Cell Phone Providers

­With its prepaid cell phone plans, Verizon offers the Motorola Razr.
­With its prepaid cell phone plans, Verizon offers the Motorola Razr.
Image courtesy of Verizon

Prepaid cell phone providers can be classified as mobile virtual network operators (MVNOs) or traditional wireless carriers. The MVNOs focus on the prepaid phone business, leasing space on traditional carriers' networks rather than having their own. Among well-known MVNOs are Virgin Mobile, Boost Mobile (a Sprint subsidiary), TracFone (a subsidiary of American Móvil, a Latin American wireless provider) and AllTel Wireless.

Here are some strengths for each of these prepaid cell phone providers, based on reviews and surveys by consumer experts:

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Virgin Mobile -- Feature-rich plans with competitive pricing. Ranked highest in J.D. Powers' 2007 survey of wireless prepaid customer satisfaction, scoring particularly well in service cost, account management, initial activation and service plan options. Readers Choice award from PC Magazine (2007) for highest ratings among prepaid carriers based on impressive plans.

Boost Mobile -- Targeted at youthful users; strong on in-demand features like push-to-talk (PTT) walkie-talkie capabilities and a camera phone with MP3 player and video recorders. Reduced-rate evening and weekend calling. It was ranked second highest in J.D. Powers' 2007 survey of wireless prepaid customer satisfaction.

TracFone -- Simple pricing and easy to use; inexpensive phones, carry-over minutes, screen view of number of remaining minutes. Recommended by WirelessGuide.org for infrequent users like emergency users and seniors.

Alltel Wireless -- Monthly or per-day plans may be a deal for frequent talkers; phones include Motorola Razr and Kyocera Slider Remix. Some plans offer unlimited text messaging and unlimited nights and weekends.

Traditional cell phone providers have done business mainly through long-term monthly contracts with customers. However, they also are stepping up and sweetening prepaid offerings to get a piece of this growing market. Traditional providers with prepaid offerings include AT&T (formerly Cingular), T-Mobile and Verizon. Here are some strengths for each, again based on surveys and reviews.

AT&T GoPhone -- Large national network and flexibility of two plan types; Motorola Razr offered; reduced-rate or unlimited nights and weekends with some plans. Ranked above industry average in J.D. Powers' 2007 survey of wireless prepaid customer satisfaction.

T-Mobile To Go -- Sidekick (with camera and keyboard) and Motorola Razr phones, plus a wide array of phone features, including free incoming text and picture messaging and competitive pricing. Ranked above industry average in J.D. Powers' 2007 survey of wireless prepaid customer satisfaction. Highest rating from PrepaidReviews.com (2008).

Verizon INpulse -- Same good quality and customer service as the traditional plans; large selection of phones including keyboard-equipped LG and Motorola Razr; unlimited calling at night and to other Verizon phones. Readers Choice award from PC Magazine (2007) for highest ratings among prepaid carriers based on superior call quality. Rated best for frequent talkers, based on low minute rate, by WirelessGuide.org.

Maybe you'd like to use a prepaid cell phone for calls to or from other countries. Go to the next page to learn more about international prepaid cell phones.

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International Prepaid Cell Phones

­People traveling internationally or studying abroad might want to get a prepaid cell phone.
­People traveling internationally or studying abroad might want to get a prepaid cell phone.
© Photo by Sean Gallup/Newsmakers

Making international calls from your prepaid cell phone may be easy -- if you're calling from the United States and your prepaid plan offers an international option. If you plan to make calls from another country, however, you probably want to consider other options, like an international prepaid cell phone.

Let's say you're calling from within the United States, using a Virgin Mobile prepaid phone as an example. All you need to do is dial 011 + the country code + the city code + the phone number. For some countries -- like Canada, Puerto Rico or Jamaica -- you don't even need to dial 011. Virgin Mobile charges the international per-minute rate for the country you're calling plus your standard airtime rate. There's no additional international charge for calls to Puerto Rico or the U.S. Virgin Islands.

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If you're calling from another country, however, you're likely to have a problem with your phone's compatibility with local networks. Cell phone networks in the United States use several different technologies to transmit information. Only one of these, time division multiple access (TDMA) supports Global System for Mobile Communications (GSM), the international standard used in Europe, Australia and much of Asia and Africa.

Cell phone users in those countries can buy one phone and simply switch to a different SIM card for phone access in each country. Cingular and T-Mobile use GSM. But even so, the 850MHz/1900-MHz GSM phones used in the United States are not compatible with the 900-MHz/1800-MHz frequencies used by the international system.

One option is to buy a GSM phone to use at home and with SIM cards while traveling. ATT, for example, offers the Samsung A437 as a world phone through its GoPhone prepaid cell phone plans. But unless you have the phone unlocked to work with other cell phone providers, you'll probably have to pay your company's international roaming rates.

Your service probably won't give you the code to unlock the phone, but several Web sites offer unlock codes for free or a small fee. SIM cards for various countries are available from Web sites such as Telestial.com, as are unlocked GSM cell phones.

If you're going to be spending an extended time in a country, another option is to buy a prepaid cell phone once you arrive. In almost every country, you get unlimited incoming calls for free.

For lots more information on prepaid cell phones and related topics, see the helpful links on the next page.

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Prepaid Cell Phones FAQ

How does a prepaid phone work?
Prepaid cell phones provide the basic services of regular cell phones without the long-term contract. They tend to have a set service (number of minutes usable over a certain number of months) that you can use until they run out. They also tend not to have all of the same bells and whistles as the latest smartphone, but they work well for many people.
What is the cheapest prepaid phone plan?
One of the best prepaid phone plans is Verizon's Prepaid Phone Plan which gives you 15GB of data and unlimited talk and text for $45 per month. If you switch on autopay and decide to stick with this prepaid plan, it's reduced to $35 per month. If you'd rather opt for a cheaper plan with less data, T-Mobile's Connect Prepaid Plan give you 2GB of data and unlimited talk and text for $15 per month.
Are prepaid phones a good deal?
If you can do without some of the frills of a smartphone, prepaid phone plans are good deals.
Do you have to pay monthly for a prepaid phone?
You can get prepaid phones that you buy a certain number of text messages and minutes for separately that don't have a monthly bill — just reload them when you want to. However, many of the most popular prepaid phone plans have a monthly fee — the prices just tend to be lower and you just don't have to commit to a contract.
What is a prepaid cell phone used for?
Because the prepaid phones cannot be traced to their users, some people use them for activism or illicit activities. Other contexts where they make sense to use include occasional cell phone users, for teens whose parents are footing the bill, and people with no credit history or poor credit.
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