When looking for a mobile phone subscription, it is common to come across prepaid and postpaid phone plans. Prepaid is also referred to as Pay As You Go, and postpaid is also called pay monthly.
A prepaid or Pay As You Go (PAYG) phone plan is where customers buy cellular services on credit by paying for the mobile minutes, texts and data in advance; a postpaid or pay-monthly phone plan is where customers are billed for the cellular services on a monthly basis after using the service.
Prepaid and postpaid mobile phone plans or tariffs are two contract types that can be used when buying mobile phone services. Depending on the situation, sometimes a time-limited mobile subscription makes sense, but there are many cases when a long-term contract is a better fit. With a prepaid subscription, we pay in advance for the services we want to use, while with a postpaid subscription, we are billed monthly for the services we use during a given month. Both subscription models have their benefits, and it is important to understand what they mean.
What is a postpaid phone plan?
A postpaid, postpay or pay-monthly mobile phone plan or subscription refers to a cellular service contract where a customer (person or business) is billed for the mobile services on a monthly basis at the end of each monthly bill cycle after consuming the services they are entitled to use.
The services are usually sold as bundles or packages, including fixed or unlimited minutes of voice calls (e.g. 1000 minutes), fixed or unlimited number of text messages or SMS (e.g. 1000 text messages) and usually a fixed amount of mobile data (e.g. 5 GB). Postpaid subscriptions are sold as packages for various customer segments, including consumers and businesses. These subscriptions provide an allowance to the customers, including fixed or unlimited mobile voice minutes, fixed or unlimited text messages and typically a fixed amount of mobile data. If a customer exceeds their allowance, they are charged for the additional usage at a rate specified by the mobile service provider. At the end of each billing period (usually a fixed date), the allowance for the next month starts. When a customer wants to purchase a postpaid subscription, the mobile operators or service providers usually check their credit history. Operators do that to make sure that the customers who buy the postpaid services can pay their bills and have a satisfactory track record.
What is a prepaid phone plan?
A prepaid, prepay or Pay As You Go (PAYG) mobile phone plan or subscription refers to a cellular service contract where a customer (person or business) pays in advance by purchasing the mobile service allowance on credit. The allowance usually includes fixed rates for voice, text and data services.
When customers use their allowance (e.g. mobile minutes, texts or data), the charges for the services are deducted from their prepaid credit at specific rates. Once the customer has fully utilised the credit, the network does not allow them to use any additional services until they recharge or top up their credit.
Prepaid subscriptions are sold as packages to meet the demands of various customer segments that are either not frequent mobile users or those interested in using their subscriptions for particular use cases, e.g. making cheap international calls as and when needed. A customer must purchase a prepaid credit in advance before they can use any mobile services. The credit can be bought directly from the service provider’s website or any local stores, e.g. retail shops or newsagents. The prepaid credit may or may not be time-limited. It can either include a bundle for a fixed period with a fixed amount of mobile service allowance (e.g. 100 voice minutes) or a fixed-rate at which the mobile services can be charged (e.g. 2 pence per minute).
Postpaid vs prepaid plans: Is prepaid better or postpaid?
A postpaid phone plan is better for those customers who use their mobile phone services frequently and can benefit from a long-term contract to spread the cost over a few years; a prepaid plan is better for customers who do not use the cellular services frequently or those with a time-limited need.
Both prepaid and postpaid subscriptions have their advantages, and it is up to you as a customer to see which ones suit you better. A postpaid subscription is typically a choice for those who have a long-term need for the continuous availability of cellular services. If you are looking to get your mobile phone financed by the mobile operator, then a postpaid subscription can turn out to be more economical every month. However, depending on your mobile operator, you may end up paying more overall, i.e. the total cost of ownership may be higher. By the same token, with postpaid subscriptions, it is easier to add/remove bolt-ons, for example, international calling minutes. Some mobile operators also allow additional benefits like a mobile data rollover, where any unused data can be carried into the following month. On the other hand, a prepaid subscription is ideal if your need is more short-term or limited use of mobile services. For example, if you are going on a vacation somewhere for a couple of weeks, you may consider buying a local prepaid SIM in the country you are going to with a limited amount of minutes, text and data (GB). It can also be an option if you need an additional subscription, e.g. for your SIM-enabled tablet, which you mostly use on WiFi but sometimes need cellular connectivity.
Why is postpaid more expensive than prepaid?
A postpaid phone plan is generally more expensive than a prepaid phone plan because a postpaid phone plan includes the price of the device in the monthly subscription fee. The price is designed in a way that allows a mobile operator to recover the device cost during your service tenure.
Postpaid subscriptions can usually be slightly higher in price than prepaid subscriptions. The monthly subscription model is the bread and butter of a mobile operator or any service provider, so a lot of thinking goes into the pricing structure. There are two parts to the pricing for a mobile phone subscription: airtime and device. Airtime is your SIM which includes your calling minutes, text messages (SMS) and data allowance (e.g. 25 GB). The other part of the tariff price is the device financing, where your operator charges you for the device monthly instead of a one-off payment. Often you are given a choice to pay an upfront cost to reduce your monthly fee. The airtime is generally designed to give customers better prices based on how long they want to commit. So, if you, as a customer, take a 36-month contract, you are likely to pay less than what you would have paid had you gone with a 12-month contract. Mobile operators also add various value-added services, for example, inclusive minutes for calling premium numbers or 500 MB of roaming data. With a prepaid subscription, you as a customer take all the risk and get what you pay for—nothing more, nothing less. For example, if you want a device with your prepaid tariff, you need to pay for the device upfront. Since prepaid users are not regular or long-term users, the tariffs are designed to meet short-term needs. As your need grows, e.g. higher data allowance or a high-end device, the postpaid subscriptions often give you better deals if you want to commit long-term.
A postpaid mobile phone plan is not faster than a prepaid phone plan because they both access the same mobile network with the same priorities. However, if your prepaid phone plan has a speed cap or if it is limited to a specific technology, e.g. 3G, you may be limited to lower data speeds.
The difference between prepaid and postpaid subscriptions is contractual. Both prepaid and postpaid subscriptions are equally important for a mobile network as they are just mobile devices trying to access the mobile network. However, there may be differences in the structure of some prepaid or postpaid tariffs, which is why you should check with your mobile operator before buying. For example, you can check if you will be able to access the entire mobile network, including 2G, 3G and 4G or just 2G or 3G. Your mobile data speeds will be limited with 2G and 3G even without the mobile operator putting any speed caps. A speed cap is when a mobile operator places a hard limit on the maximum data speeds you can get on your phone. For example, a mobile operator may have a tariff with a speed cap of 2 Mbps. With that limit, your data speed never exceeds the 2 Mbps limit irrespective of your cellular technology, i.e. 3G, 4G or even 5G. In some cases, data throttling can be applied, which means that your speeds may get limited once you have consumed a certain amount of data. By the way, if you need some help to understand how the different entities within a mobile network work together, check out our Mobile Networks Made Easy.
Difference between prepaid and postpaid through an example
Let’s look at this tariff example from a made-up operator XYZ. Suppose you want to buy this £5 prepaid bundle from this operator XYZ. You find their SIM at a local shop, you pay £5, and they give you the SIM together with a receipt that has a verification code for a £5 credit. When you insert this SIM into your mobile phone, you dial an automated number and enter the verification code when prompted. The operator XYZ may choose to give you the option to use a fixed rate like a taximeter or assign you a service bundle using the £5 credit. Towards the end of the month, you can buy additional £5 credit, and when the month ends, your bundle gets automatically renewed for another month. That way, you can continue using your prepaid plan for as long as you want. If you don’t put any credit after the initial purchase, the bundle may just come to an end after 30 days. This example is based on bundles from some UK-based operators to use your prepaid bundles month after month.
With postpaid subscriptions, you pay a fixed monthly fee, and you don’t have to worry about anything other than keeping track of your allowance. If you end up consuming all your allowance before the end of the month, you may end up paying out of bundle or overage charges. If you have enabled the spend cap on your tariff, then once you have used up your allowance and once the cap has been reached, you won’t be able to access anything that is out of your service bundle. For a prepaid subscription, depending on your tariff, you have the option to buy bundles using your credits.
What is an inactive SIM in prepaid subscriptions?
A SIM card can be classified as inactive when a customer buys a prepaid SIM, but after some time, they stop using it. If the SIM card stays unused for a certain time and does not get recharged (topped up), it may become inactive, which means it can’t be connected to a mobile network for any service.
Once the customer has either utilised all their credit or when the duration for the prepaid bundle has come to an end, the mobile network doesn’t allow the customer to use any additional services until they recharge or top up. One of the challenges with prepaid phone subscriptions is that the SIM cards can become “inactive”. SIM cards can be classified as inactive when a customer buys a prepaid SIM card (and generally some credit), but they stop using the mobile service after some time. If the SIM stays unused for a certain time (depending on the mobile operator), it may become inactive, which means it can’t connect to a mobile network. This creates uncertainty for the mobile service provider in terms of the status of these customers as to whether they will recharge at some point or if they have moved on to other service providers. The inactive SIM essentially becomes useless, and the phone number may eventually get recycled by the mobile operator, i.e. the number may get assigned to someone else.
Which subscription to buy: Prepaid or Postpaid?
A postpaid mobile subscription is suitable for customers who are frequent mobile phone users looking for a stable service contract. Such customers can get a fixed or unlimited allowance at a fixed monthly rate so that they don’t have to worry about topping up their accounts every month.
A prepaid mobile subscription works best for customers who are occasional mobile phone users, visitors in a country, or those who need an additional SIM for any occasional services they require from a specific service provider, e.g. international calls or a data-only SIM for a tablet.
For many mobile service providers, postpaid subscribers are generally the preferred customer segment because they are the source of regular income for the service provider. While the prepaid customer segment is also important to a service provider, the strategy for dealing with this segment is different compared to the postpaid segment.
Here are some helpful downloads
Thank you for reading this post. I hope it helped you in developing a better understanding of cellular networks. Sometimes, we need extra support, especially when preparing for a new job, studying a new topic, or buying a new phone. Whatever you are trying to do, here are some downloads that can help you:
Students & fresh graduates: If you are just starting, the complexity of the cellular industry can be a bit overwhelming. But don’t worry, I have created this FREE ebook so you can familiarise yourself with the basics like 3G, 4G etc. As a next step, check out the latest edition of the same ebook with more details on 4G & 5G networks with diagrams. You can then read Mobile Networks Made Easy, which explains the network nodes, e.g., BTS, MSC, GGSN etc.
Professionals: If you are an experienced professional but new to mobile communications, it may seem hard to compete with someone who has a decade of experience in the cellular industry. But not everyone who works in this industry is always up to date on the bigger picture and the challenges considering how quickly the industry evolves. The bigger picture comes from experience, which is why I’ve carefully put together a few slides to get you started in no time. So if you work in sales, marketing, product, project or any other area of business where you need a high-level view, Introduction to Mobile Communications can give you a quick start. Also, here are some templates to help you prepare your own slides on the product overview and product roadmap.