Dial V for Virtual Network

I know, terrible title, but I figured since it’s a series of three posts I should carry the theme.

In the first post, we discussed how to reduce your reliance on expensive texting fees, how to avoid the traps of “unlimited” service, the importance of reading your Terms of Service agreement with your new prepaid carrier, and how only paying for what you actually need can save you money.

Today, I’ll be covering the basics of what an MVNO really is, and how prepaid service works and differs from your traditional postpaid account.

What is an MVNO, anyway?

Excellent question! MVNO is an acronym for Mobile Virtual Network Operator, and in simple terms that apply to our day-to-day lives it means that an MVNO buys airtime access from a pre-existing MNO, or Mobile Network Operator, to resell to customers. Outfits like AT&T, Sprint, T-Mobile and Verizon are your MNOs owning the towers and spectrum licenses that allow our wireless phone networks to operate, and they resell that service to smaller companies to divide up and resell to users in novel little packages targeting various market demographics. This is where your Airvoice Wireless, PlatinumTel, Page Plus, Ting, H2O Wireless, Consumer Cellular, TracFone and their ilk come from; these are the Virtual Network Operators.

“Okay, great,” I hear you say, “how does this impact me again?” Simple, it means that most of your MVNOs will be network limited. This means that if you sign up with Airvoice Wireless, your service reception is limited to AT&T network towers only, as AT&T is the MNO Airvoice contracts out with; and if you wander out into an area where there’s no AT&T owned towers, the only phone call you’ll be able to make on the other GSM network towers you’re in range of is going to be to 911. That’s great for emergencies, but terrible for regular communications. Normally, this isn’t a huge deal as most of the national carriers have built out their networks to cover most everybody, but it is still a consideration to be aware of before you go out and just buy the cheapest or easiest prepaid service out there as it is a consideration that does impact rural users or users in cities where a specific network may have infrastructure problems that manifest in problems like constantly dropped calls. Generally speaking though, if you’re happy with the reception you’re getting from your MNO, one of that carrier’s MVNOs will likely be the best fit as a replacement if you’d prefer to play it safe. Otherwise, be sure to check the coverage maps before signing up.

There’s a couple exceptions to this rule (Ting, Page Plus, and Consumer Cellular), but overall, don’t expect the ability to roam off-network.

Prepaid versus Postpaid

Since these MVNOs are basically buying blocks of airtime access from larger carriers and reselling it to end users, you might have an idea of how this potentially impacts paying for service and how it differs from what you’re used to.

With major carriers and the monthly service contracts you sign up for through them, they’re providing postpaid service. This is where they bill you for the usage you’ve had over the past month with a minimum billing commitment of the package they’ve provided for you and steep overage fees for services used above what’s provided. This is why you have to get credit checks and pay deposits for new service, and it’s the reason why they subsidize phones with “deep” discounts that lock you into a contract for two years. People are notorious for never doing math when they’re shopping around, and this is one of the worst places where that habit will get you. If you walked into an MNO store looking for new service with a shiny new smartphone and actually read the fine print on what you were getting into and did the math, you’d realize that $200 phone and mandatory minimum $60 a month service would force you to pay over $1640 the next two years, and getting out of that contract before then would probably cost you well over $250, and you’d realize that you have to pay that $60 a month whether you’re actually using all of the provided services or not, and there’s steep costs for any overages. Of course, most people don’t do that and only see a $200 phone with $200 savings that only costs $60 a month! Wow, such a deal.

As you can see, keeping you postpaid and under contract is a real win for the MNO because in addition to gouging you money for services you’ll never actually get your money’s worth out of, they can afford to float loans on the usage of their infrastructure to the end user because they own the network. Not so with the MVNO. Since the MVNO leases access to the network paying for what’s used, they’re on tighter margins. Clearly, in order to stay profitable, the MVNO must ensure that the service they’re paying for doesn’t greatly exceed the services their users are using. The easiest way to do that is by having the customer pay for the quantity of services to be used up front before actual usage, thus enters the prepaid model.

Within this prepaid model you have two major types of service. There’s pay as you go, which is truly the cheapest minimalism approach to cell phone usage for light users and usually provides you with a rollover balance for unused minutes, or there’s the monthly package bundles like postpaid MNOs have that just stop working if you exceed the service amount budgeted until you add more funds. Either way, you’re still basically paying in advance for what you get, and getting no more than what you paid for.

The reality is, prepaid wireless phone service is pretty much the global standard, not the rule. The United States and Canada are actually a bit of an anomaly in that regard. It’s also great for people who care about their money, because it allows you to more easily pay only for what you use. There’s no nasty surprises, either. If you can’t afford the phone you want because there’s no subsidy discount, you have to pay for the phone you can afford. If you run out of minutes, you just can’t make calls. Having minor inconveniences in the usage of a (mostly) luxury service that falls square on your budgeting and time management skills to avoid running afoul of those limits could be viewed as a good thing, in fact. Self discipline is what brings out the inner badass, to use the parlance of our modern times.

It’s like the difference between credit cards and debit cards. Postpaid service is like a credit card in that you’re paying after you’ve received the goods and services, and the only limit on what you take is what the bank allows you to spend. Prepaid is like a debit card in that the only goods and services you can obtain are the ones you already have cash on hand for. Any idiot can spend money, but it takes a wise man to budget and spend less than what he has. Now, this isn’t to say that credit cards and postpaid service don’t have their places and uses as tools. For people who can truly justify the usage of the things, they’re useful and great when you approach them as such to meet a very specific purpose, and you’re responsible enough to not treat the line of credit as magic money. There can be perks to going that route if you’re facing a situation where you’re spending that kind of money for business reasons anyway because usage levels are too high to get a good deal going prepaid, like saving $400 off the cost of a new iPhone. But you have to ask yourself, are you really doing something with that phone that warrants paying nearly $100 a month for the conveniences it provides? For the rest of us, if we’re going to participate in luxury modern communications usage, why pay more than we absolutely need to? After all, you probably need a postpaid wireless phone account about as much as you need a credit card.

What about postpaid MVNOs?

Well, yes. They do exist, and they can still be cheaper than their MNO postpaid counterparts due to the lack of contracts and buying your handsets outright, but they won’t be as great a bargain as prepaid. There’s really only two major ones that I know of off-hand: Ting and Consumer Cellular. Now, Ting is a great example of how to do postpaid in a way that can be both reasonably priced and allows you to mostly only pay for what you’re using. For the cost of $6 a handset, they allow you to pool multiple handsets into a singular usage pool of minutes, texts and data. This is great for people who need family or business plans with multiple handsets. Since they’re postpaid, they have various package tiers of each of the three services billed independently of one another, but they have you set an average expected usage rate from month to month for each when you sign up. On the months you use more than you set, they bump you up to the next tier for that service on your next month’s bill. Inversely, if you use less, they take your bill down to the next lowest tier for that service the next month. Additionally, they provide roaming off the Sprint network for voice calls with Verizon, and they allow international roaming. Pretty good deal for what’s provided under certain usage scenarios where one can justify postpaid as a tool, and a great compromise between the advantages of postpaid with an MNO, and the savings of a prepaid MVNO.

Then you have Consumer Cellular, which is structured similarly to Ting, but done so in a far less transparent manner. I laugh every time I see the commercials come on where you have some old dude bellyaching about the “inconvenience” of prepaid cell service because he “runs out of minutes” all the time and the sly┬ácondescension that prepaid is only for poor people and suckers. Never mind that the only time one runs out of minutes before the end of the month with a prepaid plan is due to poor time management or a lack of proper planning and budgeting towards actual monthly usage. How is adding more money to a prepaid service any more inconvenient than having to keep a close eye on your monthly usage and constantly changing plans on your own to avoid potentially ruinous overage fees?

Now granted, they do allow for free roaming as well, but they don’t get anywhere near a reasonable cost per minute until you’re into price points that begin to make AT&T or T-Mobile’s barebones postpaid services look reasonable for most folks. The major advantages basically are reduced down to no credit check, free roaming, no contract, and a 5% AARP discount… for a service who’s baseline cost is basically $10 for a portable payphone that charges you 25┬ó a minute. You can get 100 minutes for an extra $5 and 300 for $10, but that’s only minutes. Texting and data cost above and beyond that. You can pool the resources like Ting does with extra handsets at $10 a month, but you can see how this is falling apart as a great and flexible deal. I will cut them some slack, though. It’s not entirely Consumer Cellular’s fault that their prices aren’t very attractive, it’s the price of doing business on AT&T’s network and being postpaid.

The Statue & The Vagabond

In the end, all this does is highlight the real differences between MNOs, MVNOs, prepaid and postpaid services, allowing for a more informed and wise approach to shopping for the best deal on wireless service. Postpaid gives you the freedom to roam off network, but that freedom and expanded calling area comes at a heavier price per minute. Prepaid gives you the freedom to use you service however you want at set rates with the ability to mostly only pay for what you need, but it comes at the loss of a larger service area. Basically, the questioning comes down to three factors: how much do I actually need and use, where do I carry it the most, and will entering into a contract genuinely save me money long term?

In a way, the credit card versus debit card comparison is all the more valid an analogy as the argument isn’t as much MNO versus MVNO as it is prepaid versus postpaid. Just like most people don’t actually need credit cards, most people don’t really need postpaid service. The added bonuses and frills provided with postpaid service are really services that are best taken advantage of by people who truly need their phones, like truckers or the permanently retired couple who live on the road and need to reliably call people no matter where they are without much immediate concern towards usage amount, both being situations that involve financial liquidity and placing a price on the accessibility of a tool. For the rest of us, it’s a convenience and something we don’t actually need… like a debit card is a convenience over carrying cash. Sometimes you have places that won’t take debit cards at all, others will take a Visa debit card but not a MasterCard debit card, but most of the time you’re fine… the rest of the time, you just plan ahead.

There is no one perfect magic solution for everybody, especially when it comes to using your phone as a tool versus using it as a modern luxury convenience. We have to make choices and determine how much we’re willing to pay for certain conveniences, but taking the time to place a critical eye on how we use our cell phones gives us the freedom to better choose a service that could save us money and still provide for what we need the most out of that phone.

Next will be the final of this three part series covering a few options for our friendly folks to the North. Have a great day!

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