Better smartphones help pre-paid market boost U.S. phone sales

iPhone 4S

Sales of smartphones in the U.S. were up 9 percent last quarter due in large part by an unlikely source: pre-paid phones. On Wednesday, The NPD Group shared data showing that compared to the same quarter last year, pre-paid smartphone sales nearly doubled with growth of 91 percent. In a country where consumers turn to subsidized smartphones and lengthy contracts, why the change? Better smartphones from pre-paid providers.

Instead of entry level smartphones, other capable handsets are appearing for sale with pre-paid providers; particularly those that run Google’s Android operating system. As an example, HTC’s Evo V is now available through Virgin Mobile for $299, for example, whereas 18 months ago, the best smartphone there was arguably the $30 LG Optimus V; a capable but low-end, Android starter phone. Where the recent growth has come from Android however, future growth in this market may come from Apple’s iPhone.

In the past year, Apple has moved beyond the traditional carriers to sell its phone because there are pre-paid customers that are willing to pay full price for the handset. Count Virgin Mobile and Leap’s Cricket brand as those pre-paid providers that sell the iPhone now. Customers of each will consider the iPhone because they get the Apple experience at a lower monthly price for the service that goes with the iPhone. Full-priced iPhones could still be too expensive for some — more than Android phones, for example — as Leap today noted the high price may not help the company as much as it had hoped.

Samsung Galaxy NexusConsumers may also be looking at the iPhone, as well as Androids, through a pre-paid MVNO in the U.S. My recent look at Straight Talk, for example, indicates you can take either an AT&T or full-priced unlocked iPhone to the service and pay $45 a month for unlimited voice minutes, unlimited messages and 2 GB of data on the iPhone. If you can deal with the limited data, the monthly price could net around a $1,000 savings over the life of a standard cellular contract. I do this with my Galaxy Nexus, which can be had for $349 without contract.

Given that new data sharing plans from carriers are better for those with many family members, I anticipate the U.S. pre-paid market to continue growing more than the market as a whole. And thanks to those who have bought a full-price Android handset or iPhone for pre-paid use, that should mean even better smartphone choices for individuals that want to save some money on their monthly phone service.

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