Mobile carriers are losing contracts, but gaining prepaid customers

4G-ready prepaid phones attract customers by the thousands

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As mobile phone service contracts continue to escalate in price, the top service providers in the U.S. continue to lose contracts while prepaid customers increase.

According to a report today, the seven largest U.S. phone companies, which collectively constitute 95 percent of the market, lost 52,000 contract subscribers from January to March this year.

In the same quarter, contract-free customers increased by 2 million for those carriers, and although that's a decrease from the 5 million who signed up in the same period a year ago, the number is still significant.

Indeed, a Google search for ways to cancel wireless contracts without incurring hefty fees yields plenty of results. But why are customers choosing to abandon contracts now?

Contracts are expensive

Contracted customers make up two thirds of the total number of devices for the seven largest U.S. carriers, tallying around 220 million devices total. They account for most of the revenue at these companies.

Carriers want to keep customers locked into wireless service contracts because they're expensive, especially in comparison with cheaper options like prepaid phones.

AT&T customers pay $64.46 per month on average when under contract, while that number goes down to $11.52 per month for non-contract AT&T customers.

"I think there's saturation in the postpaid market," said Pacific Crest analyst Steve Clement. "I don't think it's an epidemic."

"It's a tough economy. People are looking for better value," he continued. "Affordability always remains the issue."

Prepaid is the way to go

Options for prepaid customers are improving by leaps and bounds, with plenty of non-contract phones ready to connect to carriers' lightning-quick 4G data networks.

Even Apple's iPhone, which is only available to customers with contracts, isn't yet 4G-compatible.

T-Mobile added 435,000 prepaid customers in the last quarter, the most in any similar period in two years, for which the company directly credits 4G-ready prepaid devices.

And nationwide wireless carriers are generally gaining customers in order of size, with Verizon gaining the most, followed by AT&T, Sprint and T-Mobile, so the top three have likely gained even more prepaid customers.

"I just think that they'll probably refocus," Clement said. "Turn more of their focus to prepaid and making sure that they're getting their fair share of that growth."

And perhaps in light of waning contracts, companies reportedly discussed ways to move outside the mobile phone business at this week's annual CTIA 2012 Wireless convention in New Orleans.

For example, AT&T will soon launch family data plans, making it easier to add data-ready devices like an Apple iPad or Sony PS Vita without having to purchase additional costly data plans.

Via AP