Prepaid vs Postpaid -What’s the difference?

The number of people using cell phones is only going up, and there are already more than 8 billion mobile subscriptions worldwide. So, it shouldn’t come as a surprise that many of us carry multiple mobile phones. Prepaid and postpaid mobile phone subscriptions are two contract types that can be used to buy mobile 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 month. Both of these subscription models have their benefits, and it is important to understand exactly what they both mean to avoid confusion.

What is a postpaid subscription?

Postpaid, postpay or pay-monthly subscription in mobile communications refers to a service contract where a user is billed for the mobile services towards the end of each month after they have consumed the services they are entitled to. 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 subscription?

Prepaid, prepay or Pay As You Go (PAYG) subscription refers to a subscription where customers pay for the mobile services in advance by purchasing the service allowance as a credit. This subscription usually includes a fixed allowance or a fixed rate for the consumption and charging of mobile services such as voice calls, text messages (SMS) and mobile internet data. When the customers use these services, 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 who are interested in using their subscriptions for particular use cases, e.g. making cheap international calls as and when needed. A customer is required to purchase a prepaid credit in advance before they can use any mobile services. The credit can either 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).

Is postpaid or prepaid better?

Both prepaid and postpaid subscriptions have their advantages, and it is up to you as a customer to see which ones suits 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. On the other hand, a prepaid subscription is an ideal option 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?

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.

Is postpaid faster than prepaid?

The difference between prepaid and postpaid subscriptions is contractual. For a mobile network, both prepaid and postpaid subscriptions are equally important 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 which means no matter if you are on a 3G, 4G or even 5G network, your maximum speed never exceeds the 2 Mbps limit. In some cases, throttling can be applied, which basically 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.

Is prepaid paid monthly?

Let’s talk about postpaid contracts first. 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 charges. If you are using a spend cap, 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 the bundle.

For a prepaid subscription, depending on your tariff, you have the option to buy bundles using your credits. Let’s look at this made-up tariff example from a made-up operator XYZ. So let’s say 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 phone, you need to dial an automated number where you enter the verification code when prompted, and that’s it. XYZ can also make it simpler by preloading the SIM with the bundle, so you pay £5, insert the SIM, and that’s it. 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, then the bundle may just come to an end after 30 days. This is an example based on bundles from some operators in the UK, which allows you to use your prepaid bundles month after month. But it would be best if you always made a specific check with your desired operator to avoid unwanted payments.

Example of a prepaid bundle

What is an inactive SIM?

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 their credit or purchase a new bundle. One of the challenges with prepaid subscriptions is when the SIM cards become “inactive”. SIM cards can be classified as inactive when a customer buys a SIM card (and generally some credit), but after some time, they stop using the service, and the SIM stays unused. This creates uncertainty for the mobile service provider around the status of these customers as to whether they will recharge at some point or if they have moved on to other service providers.

What should you buy, prepaid or postpaid?

Postpaid mobile plans are suitable for customers who are frequent mobile users looking for a more stable contract without having to top up all the time. They can get a fixed or unlimited allowance at a fixed monthly price (unless they exceed their allowance) so that they don’t have to worry about topping up their accounts each time they run out of the allowance. For many mobile service providers, postpaid subscribers are generally the preferred option because they can expect a regular income from these subscribers.

Prepaid subscriptions work best for customers who are not frequent mobile users or those who are visitors in a country or those who just 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 mobile service providers, prepaid customers are one of the key segments however this segment is dealt with in a different way as compared to the pay-monthly customers.

Conclusion

A postpaid or pay-monthly subscription in mobile communications refers to a service contract where customers are billed towards the end of each month for the mobile services they have consumed in a given month. On the other hand, Prepaid or Pay As You Go (PAYG) refers to a subscription where customers pay for the mobile services in advance by purchasing the service allowance as a credit.

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 some extra support especially when preparing for a new job, or studying a new topic, or maybe just 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 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 product overview and product roadmap.

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