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Prepaid mobile phoneFrom Wikipedia, the free encyclopedia

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Typical signs showing where refills can take place.

A prepaid mobile phone (also commonly referred to as pay-as-you-go, pay-as-you-talk , pay

and go, prepaid wireless, or prepay) is a mobile phone for which credit is purchased in advance

of service use. The purchased credit is used to pay for mobile phone services at the point theservice is accessed or consumed. If there is no available credit then access to the requested

service is denied by the mobile phone network . Users are able to top up their credit at any time

using a variety of payment mechanisms.

The alternative billing method (and what is commonly referred to as a mobile phone contract) isthe post-paid mobile phone, where a user enters into a long-term (generally lasting 12, 18 or 24

months) or short term (also commonly referred to as a rolling contract or a 30-day contract),

 billing arrangement with a mobile network operator or  carriage service provider (CSP).

Contents• 1 Overview of the prepaid service

• 2 History

• 3 Prepaid versus postpaid mobile services

o 3.1 Advantages of prepaid

o 3.2 Disadvantages of prepaid

• 4 Churn

• 5 Prepaid mobile phones and roaming

• 6 Privacy rights and prepaid mobile phones

• 7 International prepaid mobile phone branding

• 8 Financial accounting issues arising for operators

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• 9 See also

• 10 References

Overview of the prepaid service

A prepaid mobile phone has access to most if not all of the services offered  by a mobile phone

operator , although the charges for these services may differ from customers with the sameoperator who have a postpaid contract.

In addition, a prepaid phone has a balance which can be queried at any time, and also topped up

 periodically. Examples of ways in which the balance can be topped up are the following:

• a credit card or debit card

• direct from a bank account using an ATM[1]  [2]  [3]  [4]  [5] 

[6]

• in a retail store by purchasing a "top-up" or "refill" card at retail. These cards are stamped

with a unique code (often under a scratch-off panel) which must be entered into the

 phone in order to add the credit onto the balance.

• in a retail store using a swipe card where the balance is credited automatically to the

 phone after the retailer accepts payment.

• from other mobile phones on certain networks which provide international top-up

services, where the initiator of the top up is often a migrant worker wanting to add

minutes to the prepaid mobile phone of a family member back home.

• direct from some open-loop prepaid cards featuring a mobile refill service.

• through electronic reloading where a specially designed SIM card (Retailer's SIM card as

used to define in the Philippines and India) is used to reload a mobile phone by enteringthe mobile number and choosing the amount to be loaded. This process is widely

implemented in the Philippines and India so that any person can be a prepaid load retailer 

creating a nationwide availability of reloading stations, even in remote areas.

Credit purchased for a prepaid mobile phone may have a time limit, for example 90 days fromthe date the last credit was added. In these cases, customers who do not add more credit before

expiration will lose their remaining balance.

There is no compulsion on a prepaid mobile phone user to top up their balance. To maintainrevenues, some operators have devised reward schemes designed to encourage frequent top ups.

For example, an operator may offer some free SMS to use next month if a user tops up by a

certain amount this month.

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Unlike postpaid phones where subscribers have to terminate their contracts, it is not easy for an

operator to know when a prepaid subscriber has left the network. To free up resources on the

network for new customers, an operator will periodically delete prepaid SIM cards which havenot been used for some time, at which point their service (and its associated phone number) is

discontinued. The rules for when this deletion happens varies from operator to operator, but may

typically occur after 6 months of non-use.

By 2003 the number of prepaid accounts grew past contract accounts, and by 2007, two thirds of all mobile phone accounts worldwide were prepaid accounts.[citation needed ]

History

Main article: History of the prepaid mobile phone

The history of the prepaid mobile phone begins in the 1990s when larger markets were beingsought after by the mobile phone operators. Before this date, all mobile phone services were

offered on a post paid basis, which excluded people with a poor credit rating.

The first pre-paid card was called "Mimo" and was launched by TMN the Mobile Phone

Operator of Portugal Telecom in September 1995.

Prepaid versus postpaid mobile services

Advantages of prepaid

A prepaid plan may have a lower cost (often for low usage patterns e.g. a telephone for 

emergency use) and make it easier to control spending by limiting debt. They often have fewer contractual obligations – no early termination fee, freedom to change providers, plans, able to beused by those unable to take out a contract (i.e. under age of majority). Depending on the local

laws, they may be available to those who do not have a permanent address, phone number, or 

credit card. This makes them popular amongst students away from their home towns and

travelers.

Disadvantages of prepaid

Sometimes, pay-as-you-go customers pay more for their calls and SMS messages, and in somecases they are limited in what they can do with their phone – calls to international or  premium

rate numbers may be blocked, and they may not be able to roam. These limitations are often dueto the complexity of managing the credit system for high price calls, or when users are not on

their home network.

Churn

As described above, prepaid accounts require that a subscriber have funds in the account to make

outgoing calls (except emergency calls which are always allowed). In the US incoming calls are

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also barred while in some other countries a prepaid mobile with zero balance may still receive

calls and texts[citation needed ].

This results in an "on/off" or "all or nothing" proposition for the prepaid service providers andtheir clients (that is, the account either has enough credit to use the phone, or it does not). Some

operators (for example Orange) allow their pre-pay customers to have a small negative balanceto allow short calls or texts when the customer's credit has been completely used. This is then

deducted when the customer next adds more credit.

The time most likely for a prepaid customer to switch to a different service provider is when the

 prepaid account reaches a "zero credit balance". Like other service providers, mobile service

 providers losing a mobile account call it "churn."

Prepaid mobile phones and roaming

In the early years, prepaid mobile phones could only be used within the operator's network who

the customer purchased the phone from. It was not possible to roam onto other GSM networkswhen using the phone abroad. This was because the operator had no way to bill calls in real timefrom another network.

However, most prepaid phones now offer roaming using one of the following methods:

• the prepaid mobile phone user dials a "trigger" number from the foreign location using a

USSD message which is not charged for while roaming. Upon receipt of the USSD, the

customer's operator will then return the call. When the service calls back, the user is being charged for the cost of the service from the credit available in the home network.

The service will then prompt the user to enter the dialed number of the party to be called.

The disadvantage of this method of roaming is that the user will not be able to dialnumbers directly from the handset. The advantage is that it works in almost all locations

around the world since USSD is ubiquitous and free.

• the user can direct dial from their handset if the network they are roaming in supports

CAMEL (Customized Applications for Mobile networks Enhanced Logic). This allowsreal time billing by the home operator without having to dial the customer back. The

advantage is that it is more natural and works seamlessly. The disadvantage is that not all

networks support CAMEL so the list of countries where a prepaid customer can use their  phone abroad is smaller than for postpaid mobile phones.

Privacy rights and prepaid mobile phonesThe neutrality of this section is disputed. Please do not remove this message until thedispute is resolved. (September 2010) 

A concern of police and security agencies worldwide is that prepaid mobile services allow the

user to be anonymous and therefore facilitate criminal, or terrorist activities. Prepaid phone users

can be anonymous for two reasons:

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• the prepaid SIM card can be sold in a shop like any other goods. There is no need to

register them at point of sale, unlike postpaid phones who have to credit check the user 

 before allowing them to purchase and enter into a contract.• Because prepaid services can often be topped up using cash and vouchers, there is no way

to trace the payment and hence determine the identity of a prepaid phone user from

 payment records.

A prepaid phone specifically purchased to be used briefly and then replaced is knowncolloquially as a burner phone or burner.

It has been suggested that a solution to this problem is to register the users of prepaid mobile

 phones. Such legislation faces heavy opposition from providers and consumers of prepaid

service, as many consumers who desire privacy for legitimate purposes or simply by personal preference find anonymity to be the primary selling point of prepaid phones. According to a

2005 study[7] 9 of 24 surveyed OECD countries require prepaid mobile users to register. These

countries are Australia, France, Germany, Hungary, Japan, Norway, Slovak Republic, South

Africa and Switzerland.

The freedom and privacy allowed by prepaid cell phones might help circumvent government

oppression and censorship, allowing improved reporting and coordination of dissidents under 

oppressive regimes.

While there is no doubt that criminals and terrorists use telecommunication services, to datethere has been no public study that has clearly examined the possible link of non-registration of 

 prepaid mobile phones to greater risk of criminal or terrorist activities. However, mandatory

registration may be a breach of a prepaid user privacy, and currently the question various jurisdictions have decided on or are examining is whether this privacy breach is an appropriate

action versus the threat that anonymous usage of prepaid services pose.

International prepaid mobile phone branding

In an effort to differentiate the prepaid from post-paid service for their customers, CSPs have branded prepaid services differently from the post-paid services.

Financial accounting issues arising for operators

Prepaid services pose a number of challenges for the accountants at the mobile phone operator.

The financial statements for the company must treat prepaid services differently from their  postpaid services. When a user makes a top up payment, it may not be declared immediately as

revenue for the business. Instead it is treated as deferred income and only enters the accounts as

income once services are actually consumed. The sum of the unused balances from all customers

effectively is treated as a liability in the  balance sheet.

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Another issue is the treatment of VAT for operators in the European Union. Typically a prepaid

top up will attract VAT in the home country at the point of sale. However, roaming calls made

 between countries in the EU are treated as a trade in services between EU members and arehence subject to VAT reversal on the wholesale level.

Sometimes the operators proposition itself has unintended side effects on the financialstatements. For example, the top up rewards described above encourage frequent top up.

However competition between operators in some cases has pushed rewards to the point where acustomer can get the majority of their calls and text free by topping up a certain amount each

month. This makes it harder for a user to "burn through" their balance and allow the top up

revenue to actually enter the operator's books as revenue.

See also

• Scrip#Gift_certificates

• Smartphone

• Personal Handy-phone System

• SIM card

• Mobile broadband

References

1. ^ http://www.zanaco.co.zm/Retail%20Banking%20-%20airtime24%20topup.htm

2. ^ http://www.wind.com.gr/Left-Menu/Mobile/For-Individual/Tariff-

Plans/Hybrid/Airtime-Recharge/Airtime-Renewal-ATM.aspx

3. ^ https://www.fnb.co.za/cellphone-services/prepaid-airtime-frequently-asked-questions.html

4. ^ http://www.virginmobile.com/vm/genericContent.do?contentId=pay.as.you.go.howdoi.sm378#top up at a cash machine

5. ^

http://www.thefreelibrary.com/Euronet+Worldwide+Launches+ATM+Recharge+Services+for+Hungary's...-a082524845

6. ^ http://www.vodafone.co.nz/myaccount/payments/prepay/

7. ^ "http://www.sfu.ca/cprost/prepaid/docs/Gow-

PrivacyRightsAndPrepaidCommunicationServices.pdf".