Prepaid phones dominate globally: Canadians used to contracts and subsidies

MONTREAL - Consumers who want smartphones like BlackBerrys and iPhones will be tied to longer contracts and the subsidies that come with them to bring down the cost until pricing and shopping habits change, analysts say.

Prepaid phones dominate globally, but in North America and especially Canada, it usually applies to only basic cellphones.

"Canadians are not used to cellphones costing a lot of money," said PC magazine analyst Sascha Segan. "Smartphones without subsidies are expensive devices."

A BlackBerry on its own without a subsidy, depending on the model, can cost up to $700.

That's the reason prepaid customers are generally carrying around less powerful and less expensive mobile phones, said Segan, managing editor of mobile at PCMag Digital Network in New York.

Segan said noted that in the United States, he knows of only one carrier that offers a prepaid BlackBerry for $50 a month with unlimited talk and text, email and web browsing but consumers have to pay US$450 up front for the phone.

But in some countries, 85 per cent of people have prepaid phones, he said

And major players like Nokia, Samsung and BlackBerry maker Research In Motion (TSX:RIM) are in the prepaid market globally.

RIM has been offering prepaid phones in countries like Philippines, Indonesia and India and in the Caribbean.

In India, where RIM launched earlier this year, low-cost BlackBerrys will work on any of the country's networks, the book says.

IDC Canada analyst Kevin Restivo said as RIM tries to make the BlackBerry more popular among consumers, it and the wireless carriers will have to change the pricing.

"I think you are going to see some unconventional ways of selling a BlackBerry to consumers in the future," said Restivo, senior analyst covering wireless communications.

There could be one-year renewable contracts or no contract with some stipulations for the device, he said.

Segan said consumers have to stop being "seduced" by the lower upfront price tag that comes with a long-term contract.

"But it means that the shopping culture will have to change from 'Let's look for the free phone' which is never free to 'Let's think about the total cost of ownership."

It will be more difficult for wireless carriers to change the pricing of the iPhone because there aren't a lot of models and of the upfront costs associated with it, he said.

Alastair Sweeny, who has written a book on the BlackBerry maker, said RIM is competing with Nokia in the developing world with prepaid phones.

"It's very clever," said Sweeny, who wrote in the newly released "BlackBerry Planet" that RIM is offering daily or monthly prepaid service.

"You have to offer the same services as Nokia," he said of the world's biggest cellphone maker.

ABI Research analyst Michael Morgan said he believes prepaid smartphones in North America will be discouraged by the wireless carriers.

"That comes down to a pricing situation," said Morgan, mobile devices industry analyst for the New York-area research firm.

"You are not going to see a prepaid BlackBerry Bold," he said of the business-oriented device.

But some consumers may want a prepaid BlackBerry if the device were priced at $99, he said.

Morgan said while smartphones are 15 per cent of the global market and expected to expand, there's still competition from basic cellphones.

"Globally the elephant is going to be growing is the $20 prepaid phone in emerging markets."

While RIM and Apple are No.1 and 2 in North America, globally RIM is fifth and Apple is tied for seventh.