Prepaid wireless service could spur price war

The prepaid cell phone market has finally hit the U.S. in a big way as economically strapped consumers flock to inexpensive pay-as-you-go services. The result will likely mean that big cell phone providers may be forced to slash prices on contract service plans to keep consumers from defecting.This is good news for consumers, who could see lower prices on both prepaid and post-paid service plans. But it is very bad news for cell phone operators, which make more money from their post paid customers than they do from prepaid customers.Prepaid cell phone plans, which have been very popular in Europe and other parts of the world for several years, allow consumers to buy a phone at full retail price, without committing to a contract, and pay for service in advance.By contrast, post-paid services require consumers to sign a one- to two- year service contract, and their usage is billed on a monthly basis. In exchange for signing a contract, wireless operators often subsidize the cost of the phone.For years, the post-paid business model has dominated the U.S. cell phone market, providing strong growth for U.S. wireless operators. Meanwhile, the prepaid market in the U.S. has been largely left to consumers who are young, price-sensitive, or considered credit risks.While all of the major cell phone operators offer prepaid services, smaller operators, such as Leap Wireless, MetroPCS, and Virgin Mobile USA, have largely dominated this market.