Venture into the World of Prepaid Smartphones

Brandy is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The race is on for low priced Android smartphones and Virgin Mobile USA, a subsidiary of Sprint Nextel (NYSE: S), has an interesting new entrant. The Venture is a $100 no-contract phone with decent specifications. It runs Android 2.3 (Gingerbread) and features a 2.8-inch touchscreen and a 2 megapixel camera. There’s a 600 megahertz single-core processor and 512 megabytes of RAM. The device sold out in pre-order and if it proves capable of maintaining that success, it could become the superstar of the growing prepaid Android market.  

A recent study from The Stevenson Company found that prepaid models accounted for 29% of smartphone sales in 2011, up 5% in three years. That’s a larger jump than the 3.1% increase postpaid (or contracted) smartphones saw in the same period. The Android operating system dominates these devices because Google (NASDAQ: GOOG) provides it (mostly) open source for manufactures and developers to use. Prepaid models will gain more of the market as the available devices improve in quality.  

 Prepaid customers do need to be realistic about what the device will be able to do. Most prepaid Android devices either strip or neuter the Google Play (formerly Android Market) shopping place for new applications. Specs from the Venture also can’t compare to contracted phones such as the Samsung Galaxy S Blaze from T-Mobile, which currently retails for $120 (after rebate) with a 2-year contract.

That’s because carriers lower the prices of more robust postpaid devices in order to sell the associated two-year data and connection plans. Venture owners will face a no-obligation monthly fee that starts at $35 a month for unlimited data, unlimited messaging, and 300 minutes of talk or $10 more per month to upgrade to 1200 minutes. Blaze owners selecting the minimum plan will have 500 minutes of talk, unlimited texts, and 10 gigabytes of capped data for about $110 a month. A bit of simple math: $110 * 24 months = $2,640 while $35 * 24 months= $840.

TechCrunch’s Matt Burns wrote a post last week trying to steer consumers clear of buying discounted Android phones. His argument focuses on contracted phones and he’s 100% right that it’s best not to skimp on those devices. If it’s a phone the consumer is going to be stuck with for one to two years, it’s important to shop wisely and choose a device that won’t be outdated within a month of ownership.

Prepaid phones don’t carry that risk, though, and the saved money is just saved money. The prepaid device can always be cancelled if circumstances change and a contracted phone becomes the better option.


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