• by Aaron Baar , March 31, 2010

Prepaid cell phone plans may finally be catching on in the U.S., thanks to the recession and a greater number of options available.

According to the New Millennium Research Council (NMRC), an independent Washington, D.C.-based technology and telecommunications think tank, nearly two-thirds of the 4.2 million net new subscribers added during the fourth quarter of 2009 did so using prepaid contracts. Accordingly, the prepaid segment of the overall wireless market in the U.S. grew 54% during the fourth quarter of 2009, compared with 3% growth for the postpaid (also known as contract-based) plans during the same period.

"Thanks to the recession, the U.S. cell phone marketplace continues to undergo fundamental changes that will just get bigger as the economic downturn deepens," Jose Guzman, project coordinator of the NMRC, said during a teleconference Wednesday.

Guzman noted the NMRC had predicted a strong growth in prepaid cell phone plans last year, citing consumer research that 40% of consumers on contract-based plans were likely to cut back on their service plans and services if the recession gets deeper. "The NMRC expects the trend of prepaid consumers will continue into the first quarter of 2010 and will continue after the recession," he said.

In addition to the recession, other factors such as strong prepaid brands and a bigger presence in retail are also contributing to the growth of the segment.

"Consumers are getting increasingly comfortable with prepaid plans," said John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League. "It used to be that you could only buy a prepaid phone in 7-11 or some kiosks. Now I think you're starting to see consumers get more comfortable with prepaid, and I think the industry is making an effort to appeal to the mainstream consumer."

And that trend will continue even as the recession lifts, as prepaid companies begin offering more sophisticated phones through a prepaid service.

Elsewhere, growth in prepaid services may also continue as general consumers (rather than travel heavy road warriors) look to add prepaid broadband services (such as Virgin Mobile's Broadband2Go product).

"The next phase of the market is not going to be driven by heavily mobile users, but by less-frequent travelers," said Mark Lowenstein, managing director of Mobile Ecosystem, who was also on the call. "The relationship between subscribers and operators is going to be much more flexible."