Prepaid or postpaid?: The fight for your cell phone dollars (Smartphones Unlocked)

No-contract carriers can slice your smartphone bill over the course of two years. But you may still opt for a pricier contract instead.

By definition, the no-contract carrier model is designed to save you money over the two-year contract agreement that reigns supreme here in the U.S.

The question is: How much do you really gain by going prepaid, and what do you lose from the subscriber experience? Without a doubt, no-contract carriers like MetroPCS, Virgin Mobile, Boost Mobile, and Cricket Wireless can dramatically cut your monthly cell phone bill, but there are trade-offs.

I’m not going to dive into every carrier’s pricing structure and phone offerings, so for the sake of comparison, I’m going to break down the cost of ownership over a two year span for two carriers: Verizon, which has the most U.S. subscribers, and MetroPCS, the country’s largest prepaid network.

Samsung’s Galaxy S3 makes a good model device thanks to its ubiquity across seven carriers; the 16GB version has a $199.99 base price for most contract providers.

That’s a cost that Verizon and others subsidize so that you can get your phone for less than the $500 that MetroPCS will charge. The trade-off for a “cheaper” phone is committing to two years of data fees no matter what, and getting slapped with a hundreds-dollar termination fee if you try to leave early.

In addition, Verizon and others add an activation fee for new lines of service. If you’re a new cell phone customer, or switching from another carrier, chances are high that you’ll be tacking a nominal fee onto the transaction, and that adds up to the phone’s overall cost.

Verizon Wireless — 2-year contract
Samsung Galaxy S3 cost $200
Activation fee (one-time) $35
Monthly access rate $40
Monthly rate (4GB data) $70
Access fee, 24 months $960
Data fee, 24 months $1,680
2-year total, excluding taxes $2,915
MetroPCS — No contract carrier
Samsung Galaxy S3 cost $500
Activation fee $0
Monthly rate (Unlimited 4G LTE) $55
Data fee, 24 months $1,320
2-year total, excluding taxes $1,820

Assuming you use Verizon’s new pooled Share Everything data plan, you’ll have to pay a monthly access fee for any device, on top of the monthly bundle for unlimited talk, text, and a portion of 4G LTE data. I chose 4GB of monthly data, but Verizon also offers plans for as low as 1GB per month to as high as 10GB per month.

Over two years, you’ll pay almost $3,000 for the Galaxy S3 on Verizon, assuming you’re activating a new line of service.

With MetroPCS, however, you skip the activation fee, and the $55 unlimited monthly rate gets you all the LTE data you can eat, on top of limitless calls and texts. MetroPCS’ LTE plans range from $40 to $70 per month, depending on add-on services. For instance, the $70 plan gets you on-demand video and unlimited Rhapsody Music.

Samsung Galaxy S IIIA high-powered phone like the Galaxy S3 brings powerful software and hardware features to traditionally more humble networks.

In this scenario, MetroPCS saves you $1,095 over the course of two years of ownership for that high-end Galaxy S3. The math gets a little trickier when you factor in lines of service for multiple family members. Verizon and AT&T have their pooled data plans, but MetroPCS does drop rate plans by $5 a plan when you have two-to-five lines of service under a single name. This is MetroPCS’ small concession for families and groups.

How low can you go?
What happens if you’re trying to get the least expensive phone you can, period? Once again, a prepaid carrier may offer you the cost advantage on the lower end of the scale, too.

Although most-known as a post-paid carrier, Verizon also has a prepaid branch that gives you unlimited talk, text, and Web. (Check and you’ll find that each national carrier has some sort of prepaid option. In Verizon’s case, there are two choices, since you can also buy phones at full retail cost and opt for a month-to-month contract.)

For the next scenario, I wanted to compare the most rock-bottom price you can get with Verizon and MetroPCS. Verizon’s least expensive handset is the $50 Samsung Gusto 2 flip phone, which, though simple, has all the basics for making calls and texts.

Verizon Wireless — Cheapest prepaid
Samsung Gusto 2 $50
Monthly fee (talk, text, Web) $50
Data fee, 24 months $1,200
2-year total, excluding taxes $1,250
MetroPCS — No contract — Cheapest
Huawei Verge, Kyocera Presto $50
Monthly fee (talk, text, Web) $40
Data fee, 24 months $960
2-year total, excluding taxes $1,010

Verizon charges $50 for unlimited talk, text, and Web, though you won’t use much Web on a phone like the Gusto 2, and that saves Verizon money in the end. The $1,250 total for two years of ownership is pretty low.

I likewise searched MetroPCS’ Web site for its least expensive offering. At the time of writing, the Kyocera Presto and Huawei Verge each cost $50.

Yet its cheapest 3G rate squeaks in at $40 per month, just south of Verizon’s offering. The difference between the two isn’t very vast, but there’s a lot you can do with the $240 you’ll have left at the end of two years with MetroPCS.

A third option: MVNOs
Carriers with storefronts aren’t the only options. You can also find great deals with MVNOs, Mobile Virtual Network Operators. MVNOs are services that resell other operators’ spectrum, and prices go as low as $30 per month without a contract. TracFone is the largest, and owns StraightTalk, a Wal-Mart exclusive that resells AT&T, Sprint, T-Mobile, and Verizon.

MVNO logos: Credo, Ting, TracFone, StraightTalk

Ting and Credo Mobile ride Sprint’s network, as do Sprint’s own prepaid Virgin Mobile and Boost Mobile brands. PureTalk sells AT&T; Net 10 rides AT&T, T-Mobile, and Sprint; and Simple Mobile resells T-Mobile service.

Getting the phone you want
As with the handsets themselves, no carrier offers a one-size-fits-all solution. No-contract providers are simpler and less invasive: there’s no service agreement and no credit check. You can often pay in cash at a retail store, so a credit card isn’t required. Since there’s no contract, there’s also no fee for stopping service sporadically or switching providers any time you want.

Selection is one big drawback; you can’t always be as choosy about what you get. Verizon, T-Mobile, and AT&T’s prepaid services are usually limited to flip phones and other simple devices. Quality midrange Android phones can easily cost $300 without a contract, but the features will often pale in comparison to the most coveted smartphones on the market.

The good news is that the more major prepaid carriers are snagging popular smartphones like the iPhone 5 and the Samsung Galaxy S3, but these will come at the full retail price, which is a larger sum up-front.

iPhone 5Cricket Wireless snagged the iPhone 5 just a week after the major carriers began selling Apple’s flagship phone.

It’s all about the network

When you’re considering which carrier to pick, you should always think about the network speeds and services you can expect. MetroPCS, for instance, works best in urban centers, so if you travel a lot to the country, you may find your call quality and ability to stream data heavily compromised.

Not every network is created equally, either. MetroPCS’ 4G LTE data is downright slow compared to Verizon’s top-notch LTE, but it’s still speedier than another carrier’s 3G network. Still, not everyone requires the absolute fastest downloads.

All the extras
Post-paid national carriers like AT&T, T-Mobile, Sprint, and Verizon can also afford to offer you greater support when it comes to in-store attention and customer service, in addition to intangibles like a more alluring brand appeal.

On the flip side, MetroPCS, Cricket Wireless, C-Spire, and others have much smaller operating and marketing budgets, so you might not get quite the level of service you’re used to if you’re switching from a major provider to a no-contract option.

Is switching worth it?
If saving money is important to you, I urge you to explore a prepaid option like a carrier or smaller MVNO. Up-front costs will be higher, but in the long term, you can cut back your spending if you stick with your original phone. If you don’t like it, there’s no penalty for going back to contract, and you can cut your losses by selling off the other carrier’s phone.

However, if a premium experience is what you want — the fastest 4G LTE and a wide choice of top smartphones — then a prepaid carrier will only frustrate you.

As a heavy data user, I personally fall into the latter camp, but I do appreciate the greater options that we’re seeing in the prepaid sector: better phones, more aggressive offers, and interesting services like Cricket Wireless’ Muve Music plan and MetroPCS’ Rhapsody package.

The bottom line is that to get the best deal, you’re still going to have to put in the time to research your options — including the carrier’s coverage zones — and sit down to do the math.

What’s your personal experience with prepaid carriers: good, bad, indifferent? Share them in the comments.

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