Prepaid cellphone plans gain popularity

Many consumers are looking to cut as many expenses as possible out of their budgets, and the long-term cellphone contract seems to be the next casualty. Once the plan of choice for shifty characters who wanted to change their phone numbers frequently, prepaid options are rapidly gaining popularity with frugal shoppers.

Providers are also offering a variety of choices that make prepaid plans more attractive to consumers. Some plans allow customers to buy one-time-use cards in increments of $25 or $50 dollars, for example, and the balance is debited as calls are made or text messages are sent.

Other plans resemble the more traditional long-term contracts. Customers pay a monthly fee for a predetermined service plan, but they pay up front and the agreement is only month to month.

As the popularity of these services has increased, so too has the selection of phones and other hardware that accompany the prepaid plans. A major difference between choosing a long-term contract and a prepaid plan is that prepaid customers often have to pay for the phones themselves. To entice customers to sign on often for several years at a time, providers have traditionally offered phones for free. Over time, however, a prepaid plan plus the purchase price of a phone could still be more cost-effective than a long-term contract.

Prepaid contracts may also be a welcome vehicle for growth for the wireless industry. According to CTIA, a wireless trade group representing wireless communication providers, wireless penetration reached 85% in the United States as of June 2008.

Additionally, The New York Times reports that over half of the customers T-Mobile added in the fourth quarter of 2008 were prepaid customers. In some metropolitan areas such as Boston, providers such as MetroPCS are entering the market offering only prepaid plans.

--Bridget O'Sullivan