NEW YORK  — For wireless subscribers, commitment is out and short-term relationships are in.

 

This year, customers have been making a big shift away from two-year contracts toward prepaid cell phone service, which often costs less and does not require contracts. This is happening even though contracts are needed to get popular phones such as the iPhone and the Droid.

Now prepaid service looks like it will get even more attractive, with further price cuts. That’s because wireless carriers have hit a wall when it comes to finding new customers who will sign contracts.

“I would love to have an iPhone. I just can’t swallow the $70-or-more bill that would come with it,” said Jeff Finlay, a 45-year-old stay-at-home dad in San Antonio who uses a prepaid plan.

Unlike contract plans that bill subscribers each month for the services they used the previous month, prepaid services traditionally let subscribers buy minutes in advance for about 10 cents to 20 cents each. When the minutes are used up, people “refill” their accounts as needed.

For years, such plans were marketed primarily to people who did not have the credit to qualify for plans with contracts. But as the recession forced more people to cut costs, prepaid service appealed to a broader slice of the market, and prepaid services responded by offering better deals.

Now it’s possible to make unlimited calls and text messages on a prepaid plan for $45 a month – half of what it costs a customer with a contract on Verizon Wireless. At Tracfone, the largest independent provider of prepaid service, customers pay an average of $11 per month.

The popularity of text messaging is also making some people move away from contract plans that provide a big bucket of monthly minutes that may not get used.

Finlay uses prepaid service from Virgin Mobile, a division of Sprint Nextel Corp., because he talks no more than 20 minutes on the phone each month. That costs him $5 per month. He sends and receives up to 2,000 text messages, so he tacks on an unlimited-texting option for $20.

His sons, 13 and 18 years old, use their phones the same way, so they’re on Virgin too. Finlay has even converted his parents to prepaid. They’re in their 70s, far outside Virgin’s target market: 18-to-24-year olds.

Together, the seven largest U.S. wireless carriers expanded their contract subscribers by just 230,000 people in the first quarter. That’s negligible compared to their entire customer base of 280 million.

Prepaid service, meanwhile, attracted about 3.1 million new subscribers to the seven largest carriers in the quarter.

This marks a sharp reversal of trends. In the same quarter just two years ago, the comparable carriers added 3 million subscribers under contract, and 2.3 million to prepaid plans.

The carriers that rank third and fourth in the United States by subscriber numbers, Sprint Nextel and T-Mobile USA, are losing contract customers.

Meanwhile, No. 1 Verizon Wireless and No. 2 AT&T are still adding contract customers, but at the lowest numbers in more than five years.

Because prepaying subscribers can cancel service at any time without penalty, carriers do not subsidize the cost of the phones as much as they do for contract-signing customers. For instance, AT&T pays Apple close to $600 for each iPhone 3GS that costs a customer $199.

It is evident that shopping for a phone deal has taken root.

“Through the recent difficulties in our economy, we’ve seen consumers say loud and clear that their phone was a must-have,” said Greg Hall, head of U.S. entertainment and wireless sales at Walmart.

“But what we have seen is them really getting smart about getting that connection with the best value.”

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