Cricket's New iPhone Prepaid Plan: Cheaper, But Is It Worth It?

iphoneIf you've been holding off on buying an iPhone for fear of being trapped into an expensive two-year contract with AT&T (T), Verizon (VZ), or Sprint Nextel (S), you're in luck. Leap Wireless (LEAP) subsidiary Cricket has a new prepaid plan with no strings.

The savings look impressive at first blush. But be warned: You'll sacrifice plenty of what makes the iPhone great in your quest to cut back on your phone bill.

Brrrrring! Savings Calling!

First, the good news. Cricket gives prepaid customers two prepaid options for Apple (AAPL) handsets. An eight-gigabyte iPhone 4 runs $399.99; the more modern 4S runs $499.99 and comes with 16 gigs of storage capacity. Both phones are eligible for the carrier's $55-per-month unlimited text, talk, and data plan.

No service or overage fees apply, which is what makes the deal seem so awesome when doing the initial math. Here's a closer look:

Upfront Cost
Contract Cost Per Year
Other carriers
Cricket is:
$300 more
$727.50 less
$427.50 less
Sources: Cricket Wireless, MSN Money.

Bear in mind that Cricket estimates the average customer pays AT&T, Verizon, and Sprint $2,775 over two years for iPhone service. Dividing by two amounts to the $1,387.50 you see in the table above.

But this may be a lowball figure. Family plans can run $200 or more per month. Sign up for a prepaid plan, bank the fees you might otherwise pay to a carrier, and before long, you could have enough to pay for a sweet family vacation.

This Cricket Can't Leap

There is a reason some users actually might want to pay hundreds more for service. All three of the major carriers have what they call fast 4G networks active and available to iPhone users. In truth, they aren't really 4G as defined by technical standards -- but they aremuch faster than Cricket's 3G alternative.

Plus, you can expect the divide to widen soon. Verizon and AT&T both have faster 4G LTE networks in place now, but only a smattering of smartphones have taken advantage. And most of those models are based on Google's (GOOG) Android mobile operating system.

All that could change on June 11, when Apple is expected to announce a new handset -- the long-awaited iPhone 5 -- with a built-in radio for communicating with the fastest LTE networks. Think Cricket's 3G network looks slow now? Wait until the new iPhone starts streaming 4G LTE.

P.S.: Your Phone May Suddenly Lock Up

Cricket presumably makes up for this flaw by allowing for unlimited data usage, a ploy that AT&T and Verizon both tried and then pulled upon realizing that game-playing, video-streaming users could consume far more than they expected. Other than Cricket, only Sprint has proven gutsy enough to offer unlimited data to subscribers.

Yet there is a catch. Cricket has what it calls a "fair use" limit at 2.3 gigabytes of data per month, after which the network is permitted to throttle back the speed at which you can send and receive data.

For its part, Cricket is downplaying the chances of throttling occurring. A table at the company's website depicts the various types of activities that consume data, topping at 650 megabytes for one hour of streaming standard definition video.

And that would be fine, except that games and high-definition video are what data consumers spend the most time with. Last year at this time, Nielsen found the average iPhone user was consuming 492 megabytes of data per month, about twice as much as the year prior. Assuming growth has continued apace, the average iPhone user is now consuming a gigabyte or more per month, making Cricket's limits not quite as generous as they seem.

Phone Plan vs. Minicomputer Plan

Therein lies the problem. Apple's iCandy isn't really a phone; it's a data-hungry digital Swiss Army knife. What's the point of having one if using it on a limited network stunts the features that make it so desirable?

Mobile Shopping Trends
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Cricket's New iPhone Prepaid Plan: Cheaper, But Is It Worth It?

Expect to see these gain popularity over the next 12 to 18 months. Augmented-reality apps offer consumers rich content -- be it on an item's features and benefits, or information that compares and contrasts various products to help shoppers make better on-the-spot, informed shopping decisions.

So in theory, a supermarket shopper with health issues debating between several cereal brands could tap an augmented-reality app to pull up product information and "compare this product versus three others," Fry says.

And AR apps will likely move beyond the supermarket aisle: There are whispers that Walmart (WMT) and Best Buy (BBY) will soon be launching augmented-reality apps.

These apps are one way retailers are fighting showrooming, when shoppers use brick-and-mortar stores as showrooms to check out potential purchases, only to buy later from online merchants at a lower price, Fry says.

"Information is value. Consumers aren't just buying on the basis of the lowest-possible price, he says. "Augmented reality apps will allow [retailers] to make a showroom that Amazon [for example,] will have difficulty duplicating."

Fry says augmented reality-apps offer a more sophisticated evolution what retailers have been attempting with QR codes, the black-and-white matrix bar codes that have been popping up on everything from product displays to store windows.

Lusting after a cool blouse or a sleek flatscreen TV but can't justify paying the steep price? Well, just as sites like alert travelers when airfares drop, clothing store Bebe (BEBE) and Best Buy now offer apps that will alert shoppers when an item goes on sale.

"Essentially, by using the retailer's app, a user can mark an item as a favorite and choose to be alerted when the product goes on sale, or reaches a price point specified by the user," Scott Gamble, vice president of digital solutions for AllianceData, which issues retail credit cards for stores like J. Crew and Pottery Barn, tells DailyFinance. "Specialty, electronic, and hard goods retailers would be most likely to implement this type of tool moving forward."

Alliance Data is now developing a "virtual gifting" mobile tool that it plans to launch as a pilot program later this year.

"The general idea behind this capability is that it would allow a cardholder of one [retail store] brand to send a virtual 'gift card' via a mobile device to another cardholder of the same brand," Gamble says. "The gift could be redeemed in-store via the recipient cardholder's mobile device. Women's specialty retailers will likely be among the first to launch this sort of tool."

While the jury is still out on how tablet computers will ultimately figure into the shopping experience, retailers are already starting to capitalize on tablets' advantage over smartphones, most notably, their larger screen size.

Retailers are now leveraging tablets to help consumers do more than simply make purchases; the goal now is to help people solve more complex shopping problems like how to redecorate a room or piece together a wardrobe. The right tool for those project-sized tasks: Magalogs, hybrid magazine/catalog mobile sites that offer how-to advice and rich content, Fry says. "It's about providing better context to make it easier for shoppers to purchase from these retailers," he says. The consumers can conceivably use retailers' mobile magalogs to walk them through a project in a store. They'll use their tablets to "give me ideas and tell me how to execute a project," Fry says.

Cosmetics chain Sephora, for one, announced this week the test roll out of iPads to 20 stores, where they will give shoppers another way to navigate the retailer's thousands of products and interact with the menu of services offered by its Beauty Studio.

Sephora just updated its online and mobile sites. Now, each product on is tagged and indexed with 25 different characteristics, from data like target age group, to specific ingredients, formulations, fragrance, price and more, in a bid to offer shoppers a targeted, personalized shopping experience.

Some women's apparel chains are strategically placing QR codes in their stores -- in fitting rooms, for example -- so that shoppers can sign up for store credit cards on the spot, assuming that the shopper has both a camera and a QR-code reader on their smartphone.

A shopper can scan the QR code, which connects them to the retailer's mobile-optimized website, where they're asked a few questions to apply for the store card, Gamble says. If qualified, "they would receive approval within a minute or less."

"The QR code makes the application process very quick and convenient for the customer and, upon approval, almost immediately specifies their buying power -- their credit limit -- so they can immediately take advantage of the benefits of instant discounts and rewards that typically come with the initial card purchase," he says.

Consider Siri. The voice-activated assistant present in the iPhone 4S has prompted owners of the device to double their data usage when compared with those who have the more pedestrian iPhone 4.

Cricket users would still have access to Siri, of course, but data limits would make the app far less useful than it otherwise might be for major carrier subscribers with access to higher-speed, higher-capacity networks.

Cricket's prepaid iPhone plan offers hundreds and perhaps even thousands in savings. Just don't sign up expecting the same experience you'll get from any of the major carriers. You won't get it.

Motley Fool contributor Tim Beyers owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and past columns. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google, as well as creating a bull call spread position in Apple.

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