More switch to prepaid phones

May 15, 2010 at 12:00a.m.

Associated Press

NEW YORK

For wireless subscribers, commitment is out and short-term relationships are in.

This year, customers have been making a big shift away from two-year contracts toward “prepaid” cell phone service, which often costs less and does not require contracts. This is happening even though contracts are needed to get popular phones such as the iPhone and the Droid.

Now, prepaid service looks like it will get even more attractive with further price cuts. That’s because wireless carriers have hit a wall when it comes to finding new customers who will sign contracts.

Unlike contract plans that bill subscribers each month for the services they used the previous month, prepaid services traditionally let subscribers buy minutes in advance for around 10 to 20 cents each. When the minutes are used up, people “refill” their accounts as needed.

For years, such plans were marketed primarily to people who did not have the credit to qualify for plans with contracts. But as the recession forced more people to cut costs, prepaid service appealed to a broader slice of the market, and prepaid services responded by offering better deals.

Now it’s possible to make unlimited calls and text messages on a prepaid plan for $45 a month — half of what it costs with a contract on Verizon Wireless. At Tracfone, the largest independent provider of prepaid service, customers pay an average of $11 per month.