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Companies push prepaid cellphones

The Wall Street Journal

Everybody hates paying their cellphone bill. Now, the struggling wireless industry has a plan to ease your pain -- and theirs: pay before you even make the calls.

Prepaid calling plans, in which customers buy a limited amount of phone time that is tracked via computer, were originally marketed to people with poor credit. But they are now gaining wider acceptance among people with far bigger pocketbooks. At a time when wireless companies are finding it harder to attract new customers, the plans have become a growth engine for the industry. Last year, 12 percent of cellphone customers used a prepaid or other spending-limit plan, and that figure could more than double by 2006, according to Yankee Group, a Boston-based technology-consulting firm.

The plans are a key part of the industry's push for new customers, having already snagged the most obvious and lucrative customers -- road warriors and business people. The services might also tap into consumer frustration with traditional phone-service plans. Roughly 30 percent of all cellphone owners dump their service each year, up from 25 percent from five years ago.

Wireless companies are pitching the prepaid plans to people who want more control over their wireless spending. They range from parents who want to keep a lid on their teen-agers' cellphone usage, to people who hardly use their cellphones except for emergencies.

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Customers don't get hit with recurring fees and aren't locked into months-long contracts, two irritating features of traditional cellphone service. They buy a dollar-value of phone time, and when it's gone, it's up to them whether they want to buy more. They can add minutes by purchasing new cards or, in many cases, simply add minutes online or by telephone.

But the prepaid plans come with their own restrictions and also require people to buy their own phone. In addition, the pay-upfront option generally isn't a good idea for people who make a lot of calls. That is because per-minute charges are higher than with traditional plans -- on average 25 percent more..

Another caveat with the prepaid option is that customers might wind up shelling out for minutes they never use. Calling cards typically expire in anywhere from 15 to 90 days, though usually you can roll over unused minutes by purchasing additional airtime before the card expires.

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