What is the difference between prepaid and postpaid?

The number of people using cell phones is only going up and there are already more than 8 billion mobile subscriptions in this world. So, it shouldn’t come as a surprise that many of us carry multiple mobile phones. Prepaid (or prepay) and postpaid (or postpay) are two types of mobile subscriptions. Depending on the situation, sometimes a time-limited mobile subscription makes sense but there are many cases when a more long-term contract is what we need. 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.

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

What is a postpaid subscription?

Postpaid 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 are capable of paying their bills and have a satisfactory track-record.

What is a prepaid subscription?

Prepaid, prepay or Pay As You Go (PAYG) subscription in mobile communications 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 credit has been fully utilised by the customer, 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 very specific 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 from any local stores e.g. retail shops or newsagents etc. 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 for (e.g. 2 pence per minute).

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.

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