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Prepaid Cell Phones: Analysis of Pay as You Go vs. Monthly Contract Plans

Analysis of Virgin Mobile versus Verizon Wireless pay-as-you-go plans

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Virgin Mobile is one of several providers of pay as you go.

Virgin Mobile is one of several providers of pay as you go.

Image © Virgin Mobile
Jan. 1, 2010
While contract-based cell phone plans are the norm in the United States, plans to pay as you go for prepaid service have been popular throughout Europe.

But they’ve also gained steam in the U.S. The allure of being liberated from a long-term contract – and not having to pay the typical $150 or $200 penalty to terminate early – is attractive enough for some pay as you goers.

While many contract-based plans take into account changing habits (i.e. with “flexible” plans and “rollover” features), the draw to using 100 minutes in one month and 1,000 the next while fairly paying for the difference is the kicker for other pay-as-you-go people.

Some even engage pay-as-you-go pricing to avoid credit issues often associated with contracts. Pricing is becoming attractive, too, such as $49.99 with Virgin Mobile for unlimited minutes with no contract.

But what’s the real difference between the two pricing models in an apples-to-apples comparison? What would 400 minutes a month cost in both scenarios? Which one is cheaper?

Let’s explore that very question. For the purposes of this analysis, we highlight two popular pay-as-you-go companies: Virgin Mobile (which caters to a younger and often more fickle demographic) and Verizon Wireless.

While Verizon Wireless is more known for its contract-based plans, its pay-as-you-go plans are directly competitive with Virgin Mobile’s non-contract plans. It’s time to jump into the numbers. These figures are current as of publication of this article on May 30, 2008.
    Virgin Mobile pay-as-you-go pricing with roll-forward minutes:
  • $20 a month, 200 anytime minutes, 10 cents per minute
  • $30 a month, 400 anytime minutes, 7.5 cents per minute
  • $50 a month, 1,000 anytime minutes, 5 cents per minute
    Note: Texting costs $5 a month extra for 200 texts, $10 a month for 1,000 or $20 a month for unlimited
    Verizon Wireless pay as you go with unlimited calling to same-carrier phones:
  • 99-cent charge on days used, 10 cents per all minutes and texts
  • $1.99 charge on days used, unlimited night minutes, 5 cents per minute and per text
  • $2.99 charge on days used, unlimited night minutes, 2 cents per minute and per text
For comparison, below is a matrix of Virgin Mobile’s current contract-based plans.
    Virgin Mobile contract-based plans:
  • $24.99 per month, 200 anytime minutes
  • $34.99 per month, 300 anytime minutes
  • $49.99 per month, 400 anytime minutes
  • $59.99 per month, 600 anytime minutes
    Note: Texting costs $5 a month for 1,000 texts or $10 a month for unlimited
Now it’s time to calculate a couple example situations with these three payment scenarios. We’ll analyze 200 minutes per month and 400 minutes per month since all three appear in each situation. For the Verizon Wireless pay-as-you-go plan, I’ve made the assumption of 10 calling days used as an average figure.
    200 minutes per month:
  • Virgin Mobile pay as you go: $20
  • Virgin Mobile contract plan: $24.99
  • Verizon Wireless pay as you go: $29.90 using 99-cent days, $29.90 using $1.99 days and $33.90 using $2.99 days
    400 minutes per month:
  • Virgin Mobile pay as you go: $30
  • Virgin Mobile contract plan: $49.99
  • Verizon Wireless pay as you go: $49.90 using 99-cent days, $39.90 using $1.99 days and $37.90 using $2.99 days
While many variables can change this analysis, I’ve used typical and everyday scenarios so we can see a clear comparison.

Based on this analysis, we can conclude that the Virgin Mobile pay-as-you-go plan is the superior solution in all cases. Also, notice how the option with $2.99 charges on days used becomes a more cost-effective choice only when you use more minutes.

When it comes to paying as you go, Virgin Mobile is explicitly priced to be among the best in the mobile phone industry. That’s chief among the reasons why the Sprint reseller has such a high customer base electing for its flexible, no-contract route.

Update: We have an even more extensive prepaid wireless analysis comparing prepaid versus contract-based plans at Virgin Mobile, Boost Mobile, Net10, T-Mobile, Verizon Wireless, Tracfone and AT&T. You can also learn about all of the prepaid wireless plans in this mega hub.
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