History of prepaid mobile phones

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The history of the prepaid mobile phone began in the 1990s when mobile phone operators sought to expand their market reach. Up until this point, mobile phone services were exclusively offered on a postpaid basis (contract-based), which excluded individuals with poor credit ratings and minors under the age of 18 (the typical age of contractual capacity).

A mobile phone operator, wireless provider, or carrier is a mobile telecommunications company that provides wireless Internet GSM services for mobile device users. The operator gives a SIM card to the customer who inserts it into the mobile device to gain access to the service.

The postpaid mobile phone is a mobile phone for which service is provided by a prior arrangement with a mobile network operator. The user in this situation is billed after the fact according to their use of mobile services at the end of each month. Typically, the customer's contract specifies a limit or "allowance" of minutes, text messages etc., and the customer will be billed at a flat rate for any usage equal to or less than that allowance. Any usage above that limit incurs extra charges. Theoretically, a user in this situation has no limit on use of mobile services and, as a consequence, unlimited credit. This service is better for people with a secured income.

A credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. The credit rating represents an evaluation of a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts.


Prepaid mobile phones are used around the world.

First US installation

A patent for prepaid mobile phones (Patent Number 5826185) [1] was filed on November 16, 1994. Among the first, if not the first large metropolitan area implementation of prepaid mobile phone service in the United States was in the early 1990s at Houston Cellular Telephone Company, Houston, TX.[ citation needed ] HCTC was then an independent wireless carrier owned jointly by PacBell and BellSouth. HCTC introduced a service offering branded "calltrac" based on Voice Systems Technology, Inc.'s telephony platform with RPAC-2 billing during the first quarter of 1994.

BellSouth, LLC is an American telecommunications holding company based in Atlanta, Georgia. BellSouth was one of the seven original Regional Bell Operating Companies after the U.S. Department of Justice forced the American Telephone & Telegraph Company to divest itself of its regional telephone companies on January 1, 1984.

HCTC initially offered prepaid mobile phone as a non-advertised alternative way to provide service to the more than 40% of cash-carrying, walk-in consumers who were being denied cellular service each day due to lack of credit. The plan was very expensive for the day, most subscription plans were double that of their postpaid subscribers and the prepaid subscriber still had to pay for their equipment (handsets) and anticipated call usage up front. HCTC used the Calltrack prepaid cellular program as a credit development vehicle until they developed subscriber reports intended to show that "Calltrack" was not a profitable venture.

The reports showed that a Calltrack prepaid subscriber was actually more profitable than their traditional postpaid subscribers by a huge margin. This was because, at that time it cost an average of 17% of their gross proceeds to collect on their bad debt postpaid subscribers, plus HCTC paid for all the postpaid handsets. HCTC was poised to become the first U.S carrier to go primarily prepaid, but it did not happen. Voice Systems Technology Inc. was sold to Boston Communications Group (BCGI) and the subsequent sale of prepaid cellular platforms in the US was immediately curtailed and the prepaid cellular service bureau was born. U.S Carriers spent several years trying to catch-up and develop their own solutions but patent litigation has kept prepaid from becoming the dominant form of payment. [2]

Boston Communications Group, Inc., more commonly called bcgi, was one of the largest prepaid mobile phone companies in the United States until 2007. In 2005, they settled a patent lawsuit brought by Freedom Wireless, a private intellectual property firm based in Phoenix, Arizona. bcgi and its co-defendant had lost a jury trial, which awarded Freedom $128 million in damages. The co-defendants agreed to collectively pay $87 million, of which bcgi's share was $55 million. The stock price jumped from $2.09 to $4.01 upon news of the settlement, because the lawsuit threatened to drive the company into bankruptcy.

Early providers

The possibility of "prepaid wireless" in the United States actually came from Judge Green's decision to break up AT&T's monopoly. Prior to the 1968 Carterfone decision, AT&T prohibited connecting non-Bell (Western Electric or Bell Labs) ancillary devices to its telecommunications network.

Western Electric Company was an American electrical engineering and manufacturing company that served as the primary supplier to AT&T from 1881 to 1996, and to the local Bell Operating Companies until 1984. The company was responsible for many technological innovations and seminal developments in industrial management. It also served as the purchasing agent for the member companies of the Bell System.

Bell Labs Research and scientific development company

Nokia Bell Labs is an industrial research and scientific development company owned by Finnish company Nokia. Its headquarters are located in Murray Hill, New Jersey. Other laboratories are located around the world. Bell Labs has its origins in the complex past of the Bell System.

A provider of prepaid mobile phone service was Banana Cellular, founded by Andrew Wise in 1993, which covered the provisioning of prepaid wireless services. Banana first sold prepaid mobile phone services in April 1993 in a small office located in Phoenix, Arizona.[ citation needed ]

Phoenix, Arizona State capital city in Arizona, United States

Phoenix is the capital and most populous city in Arizona, with 1,660,272 people. It is also the fifth most populous city in the United States, and the only state capital with a population of more than one million residents.

The first practical implementation of prepaid wireless originated in the United States from a small group of entrepreneurs at Voice Systems Technology, Inc. This product was the core product under Houston Cellular's CallTrac (1994), Boatphone BVI's Prepay (1994), Cable & Wireless Prepay (1997), and BellSouth's first international prepaid wireless product (1996).[ citation needed ] The first European PAYG deployment was in Portugal in 1995 when Portuguese operator TMN deployed a PAYG solution called MIMO.

Portugal Republic in Southwestern Europe

Portugal, officially the Portuguese Republic, is a country located mostly on the Iberian Peninsula in southwestern Europe. It is the westernmost sovereign state of mainland Europe, being bordered to the west and south by the Atlantic Ocean and to the north and east by Spain. Its territory also includes the Atlantic archipelagos of the Azores and Madeira, both autonomous regions with their own regional governments.

In November 1996, Vodacom (South Africa) became the first network to introduce prepaid mobile, under the 'Vodago' package, using an 'Intelligent Network' platform. This made it possible to debit customers' accounts in real time (MyBroadband (2014) 'Great South African inventions'), and led to a dramatic increase in uptake (Computer Business Review (2001) 'Mobile stats snapshot'). In 1998 Vodacom received a "Best GSM Service" award from the GSMA for this (GSMA (nd) 'Global Mobile Awards History').

The concept was further developed by Vodafone UK, who in Oct 1997 launched 'Pay as you Talk', packaging a GSM phone with a prepay tariff, and retailing it in new kinds of mass merchandiser retailers such as Woolworths and Argos and one year later into supermarkets such as Tesco (previously mobile phones had only been sold in specialist phone retailers). Customers could buy the product outright for £149 (reducing to £99 very shortly afterwards) which came with credit and then top up as they needed. Pay as you Talk went on to be the market leading prepay proposition in the UK for many years attracting millions of new mobile customers.

The concept was also developed by Eircell (then owned by incumbent Telecom Éireann) in the Republic of Ireland in 1997, as a method of letting different types of people (those under the age of 18, those without bank accounts and those without proof of identity) obtain a mobile phone. Originally limited to one TACS handset, costing £99 upfront, the system was an amazing success, despite the high price of calls and a 7p service charge on every operation. The system was branded as Ready To Go, a name still used by Vodafone, who now own Eircell.

The concept has since been copied in many other countries, with virtually every network in every European country supporting it. On many networks, such as Ireland's Meteor, pay-as-you-go is the main mode of operation, with pay monthly account phones being very much second-class. Conversely, in the United States, account phones offer the best features with pay as you go services being far more restricted in functionality. In developing countries pre-pay tariffs are chosen by the overwhelming majority of subscribers.

Technical evolution

Early solutions to monitor the amount of credit remaining were called "hairpin solutions". They were so called because they connected the caller in and out of a central platform to monitor usage, meaning that it took two extra dedicated trunks on the cellular switch to make one call, one for the inbound connection to the telephony platform and the second back to the switch to complete the call. Trunks were an expensive resource in large metropolitan mobile telephone exchanges and switching equipment did not have the capacity that it has today, so prepaid was relegated to being the second choice for most US carriers. [3]

Modern prepaid mobile phone solutions use out-of-band signaling called the Intelligent Network to monitor the credit without the need for hairpinning trunks. These are developed as international standards which allow prepaid use of a phone all over the world.

See also

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  1. Wise, Andrew. "Prepaid Cellular Patent". 5826185. USPTO. Retrieved January 24, 2012.
  2. "http://www.bcgi.net/assets/pdf/annual/2001.pdf" (PDF). Archived from the original (PDF) on April 14, 2008. Retrieved April 14, 2008.Cite uses deprecated parameter |deadurl= (help); Cite web requires |website= (help); External link in |title= (help)
  3. "http://www.intellinet-tech.com/services/case_studies.php/". Archived from the original on June 2, 2007. Retrieved June 8, 2007.Cite uses deprecated parameter |deadurl= (help); Cite web requires |website= (help); External link in |title= (help)