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

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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(s goog) 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(s goog) starter phone. Where the recent growth has come from Android however, future growth in this market may come from Apple’s(s aapl) 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 (s s) and Leap’s(s leap) 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 (s 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.

21 Responses to “Better smartphones help pre-paid market boost U.S. phone sales”

  1. Kevin,
    I think more people are jumping the ship after your straighttalk post.
    I switched from Sprint to Straighttalk using a Pre3. I am convinced to dump Pre3 and buy Nexus after your wrote about the camera. Thank you. That was helpful.

    PrePaid will rise if Google sells unlocked low spec phones for $ 250.00 and high end phones for $399.00.

  2. Jen Anderson

    Right now I am luckily covered by unlimited data on Verizon, but prepaid seems the much better (less costly) choice, but is it really if you use a lot of data?

  3. Gregg Borodaty

    I really want to get off contract and go pre-paid, but every time I run the numbers, it never works. I have 4 lines on a family plan at T-mobile, and the monthly cost on contract is cheaper than putting each line on a prepaid plan with one of the GSM-based providers (and that is before adding in the phone subsidies). It seems like the plans are all designed for people with 2 lines or less.

    Since my family doesn’t use many minutes, I need a plan like the Virgin Mobile $35 plan (300 minutes, unl. text+data) from a GSM pre-paid provider. Does anyone know of a GSM-based provider that offers such a plan?

  4. osiaffiliate

    I think pre-pay is not a bad option. It really depends on how many minutes you use, if you are using an average amount, why not go for the prepay.

    • Unlimited prepaid services are so cheap ($40 to $50), for many people, there is no need to even count the minutes any more. For example, including taxes, I pay Straight Talk less than $50 per month for unlimited minutes, unlimited text and 2GB data at 4G speeds.

  5. Atlantaguy

    One thing of note, though: Virgin Mobile and Cricket use Sprint’s primary towers only – they cannot “roam” as you can on Sprint’s normal network when under contract.

    So if you get a prepaid iPhone right now via either of those services, your coverage area is going to be very limited compared with some other carriers. While Straight Talk/Net10’s Android phones do use that same limited Sprint setup, a few of their newer Android handsets use Verizon towers giving them much better coverage.

  6. I went with StraightTalk, their Galaxy Proclaim (for $189), and the $45 p/mo plan. It is a CDMA phone using the Verizon network. I ported my VZW number over and am now getting essentially the same service that I had before with VZW for about $40 less per month. While the Proclaim is not the latest and greatest, it seems solid enough. BTW LTE/4G is not yet available in my part of rural WY. What I wonder is if the MVNO model is solid/durable/sustainable or will the big 4 cut them off? The business model seems an odd one. Why does VZW wholesale their service to StraightTalk?

  7. Just stumbled across your blog and read your Straight Talk article. What will you be doing with that Iphone that Straight Talk sent you? I’ll take it off your hands. :) lol I use Straight Talk and am currently using a Go Phone from ATT. The only way for me to get an Iphone is to pay $600 or more for a noncontract one to use on ST or to find a 3GS iphone on Ebay for around $200. *SIGH* Apple and all the cell phone companies are just one big monopoly!

  8. You might want to mention the fact that Ting is launching the Samsung Galaxy SIII in just a few weeks, only months after its launch on traditional carriers. It will also have equal access to Sprint’s brand-new LTE network.

    • Absolutely. Here’s a calculation I did for a friend who was trying to decide on their first smartphone:

      iPhone 4S vs Galaxy Nexus cost of ownership in the United States with service for 2 years before taxes:

      iPhone 4S + AT&T contract
      = $199 + ($99.99 per month X 24 months)
      = $2598.79

      iPhone 4S Unlocked + prepaid Straight Talk 4G service
      = $649 + ($45 per month X 24 months)
      = $1729

      Galaxy Nexus Unlocked + prepaid Straight Talk 4G service
      = $349 + ($45 per month X 24 months)
      = $1429

      An unlocked iPhone 4S is costlier to own for 2 years by over $300 with taxes and an iPhone 4S with a 2-year contract is costlier to own by a over whopping $1169.76 with taxes!

      The new Galaxy Nexus with Jelly Bean is better than the iPhone 4S in every feature, including cost of ownership!