Beginner's Guide to Mobile Plans

Summary: With so many mobile phone deals on the market you could be forgiven for being confused. We outline the key things to look out for...

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Think About Your Needs

If you hate being tied down, then prepaid plans are for you. However, over time it makes much more financial sense to go on a 24 month contract and get the benefits of a free phone.

Alternatively, the best $0 upfront phone and call rate deals are on contracts and if you don’t mind the commitment to a 12 or 24 month contract, you will save money over the long term.

For consumers, there are two key types of mobile phone connections, PrePaid and Post-Paid and we’ll start with a look at both of them.

What is Prepaid?

Prepaid means paying up-front for an allocated amount of calls and having to recharge to make new calls once that value has been used or has expired. These Prepaid plans traditionally have higher per minute call rates and charges than post-paid plans.

Prepaid has the distinct benefit of allowing complete control of your bills as you only recharge when you run out of credit. Prepaid is great for teenagers as you can control the spending by limiting recharges, comfortable in the knowledge that there are going to be no surprises at the end of the month as you can’t spend more than you pay upfront.

What is Post-Paid?

With Post-Paid plans, your carrier lets you call whenever you want, for as long as you want and lets you pay your bill at the end of a monthly period for the amount you use. This means the carrier is letting you run up a bill and pay it later (post / after the event) which is a form of credit. Of course this will also mean that you need to have a credit check to be accepted as a Post-Paid customer. The most popular widely used type of Post-Paid plan is the 24 month contract where customers can find the best prices on subsidised or $0 upfront mobile phones.

What is a Cap Plan?

Cap plans have pretty much taken over the mobile market, with all carriers promoting their cap plans as their lead offers to new customers.Importantly, a cap plan is NOT actually capped at an absolute amount. Rather, these capped plans are actually capped at a pre-defined amount and then any usage above this pre-defined amount will incur additional charges.

Even though cap plans are named incorrectly, don’t hate them, because they can be great.

How a Cap Plan Works

When you see a product which says you get $300 of calls for $49 a month, this means you will start by paying a fixed amount of $49 a month. You might use calls worth $100 on that plan, or $200, or even up to $300 in the month and you will still pay only $49. That's great news.

If you use more, say $350 in the month on that plan, you’ll pay the original $49 a month for the allocated $300 of calls and another $50 for that the extra calls at the rates in the plan i.e. you’ll pay $49 + $50 for a total of $99 for that month.

If you do overspend repeatedly, it is worth going up to a higher cap plan to accommodate your calls in the standard monthly fee, which might be the $69 cap with $500 of calls.

The speed at which you burn through that capped amount of $300 is dependent on the call rate and flag-fall (cost of connection for each call). Commonly, the lower value cap plans have had slightly higher call rates so you burn up the cap more quickly.

Should I Buy my Phone Outright, or Get a Free Phone on a Contract?

Many people get very confused at deciding which method is best. To get a real understanding of the economics of mobile phone contracts and mobile phones, you need to think like a modern mobile phone carrier.


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