A recent article in The Prepaid Press pointed out that prepaid wireless is growing faster than traditional post paid wireless. For example, how many of you have a cell phone? Everybody? OK, how many of you have a prepaid cellular phone? Quite a few. How do you top up your account? Online? Convenience Store? Your parents send you a card? Automatic refill? These are all ways that minutes can be added to your prepaid cellular phone.

For the majority of you that do not have prepaid cellular service, let me tell you some of the basics. First why would you want to prepay? Well, here is a surprising answer. Even if you have a service contract, you are prepaying. Look at your bill; the monthly service fee is for the upcoming month. Any charges for additional minutes, roaming charges or other usage based expenditures are in arrears, since they can’t be anticipated before they actually occur.

There is a difference when you sign up, however. When you get a service contract, you will sign a credit agreement of some nature, and your credit will be checked to make sure that you have a record for paying your bills. The biggest reason for a service contract is the handset subsidy. When you guarantee that you will keep the account for a certain amount of time, usually two years, you get a handset that is highly discounted, or free. Handset, by the way, is the term used by industry insiders for the cell phone instrument. The reason you get a free or highly discounted handset with a service contract is that the cellular operator is buying your loyalty. The cost for acquiring a new customer is typically $100, or more. Low end handsets, in quantity, cost the carrier less than half of that, so it is a good deal for them. Whether it is a good deal for the consumer is debatable.

If you go with a prepaid service, you will pass on the subsidy and will have to supply your own handset, or buy one. Some companies may give you one if you buy enough minutes at one time, but it is safe to assume that you will have to pay something to get the handset. The choices in prepaid handsets used to be very limited, but now you can get almost any handset you want, including an iPhone. If you buy a new, minimal function handset, it will cost you $40 or even less. There are also refurbished or used units available at times, and you might even be able to use an old one, but you will have to check with the prepaid supplier to be sure.

So, you buy the prepaid handset. Now, you have to charge it up with minutes that you pay for in advance. You will usually buy your first minutes when you get the phone, but you don’t have to, if you are giving a prepaid handset as a gift, for example. The handset will have a telephone number associated with it. Just remember, that until you charge up the phone, you will not be able to make or receive any calls.

There are actually a couple kinds of calls you can make before you charge up the phone. One is to the cellular company’s customer service to help you get started. The other call you can make on a handset with no paid minutes is to 911. This is required by law. Many people carry an “unactivated” cell phone with them just for emergencies.

OK, so now you bought the handset. Depending on the prepaid company, you have several ways to top it up. There are kiosks that you can use in convenience stores and other retail locations. Or, you often top them up by giving a clerk cash, a credit or debit card. The clerk will use a POS terminal to add the minutes to your account. Most service providers have a web site you go to and pay with a credit/debit card, PayPal or a transfer from a bank account. You can even have the account top up automatically when you are down to a certain balance.

One important thing is to make sure you know how long the minutes you buy in advance are good. Some operators give them very short lives, even as few as 30 days. Unless you can accurately predict what you will use every month, avoid short expiration periods, because you will be surrendering all unused minutes every 30 days. There are several operators that now allow minutes to be used for up to a year.

The final point is the importance of prepaid mobile top up to merchants. There is obviously money to be made in handling the transactions. It is not a big margin, but there is no inventory to have to invest in, and the transactions are quick and efficient.

The biggest benefit to a merchant could be the traffic that is generated by having the prepaid cellular user come back to your store to top up their minutes. As long as a user is topping up, might as well get a cup of coffee and, hey, those bear claws look great! You get the picture. More traffic, more sales.

See you next class!