The prepaid ‘poverty premium’

Low-income households face higher unit costs for mobile data due to demand constraints and supply-side market factors.

Heath Gibson · Executive Manager – Industry Intelligence and Insights at NBN Australia5 July 2024Period: Q4 FY244 min read

44%→

Maximum observed poverty premium for prepaid vs postpaid (Q4 FY24)

27%→

Minimum observed poverty premium for prepaid vs postpaid (Q4 FY24)

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Abstract

Prepaid mobile services are often used as an example of a ‘poverty premium’. This brief explains the concept of the poverty premium and estimates the poverty premium and bulk buying discount for selected mobile plans. The poverty premium helps quantify the digital disadvantage faced by consumers experiencing poverty. It is therefore of interest to telcos, consumer advocates, and policy makers seeking to improve digital inclusion and the customer experience for people experiencing financial hardship.

Key Takeaways

Prepaid mobile users pay a significant poverty premium ranging from 27% to 44% compared to entry-level postpaid users.
The unit cost of data (cost per GB) is consistently higher for prepaid services, which are often the only option for low-income households.
A 'bulk buying' discount exists where more expensive plans offer proportionally more data, penalizing those who can only afford small recharges.

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Frequently Asked Questions

Prepaid users pay a significant premium ranging from 27% to 44% over entry-level postpaid plans. This price gap is driven by higher unit costs for data, which reach as high as $1.57 per GB among the top three operators.

No, the disparity is structural, as pricing models reward bulk buying and penalize those who can only afford small, frequent recharges. Analysis of 64 plans across 11 providers confirms that users unable to commit to large upfront costs or automated payments face a secondary premium due to volatile cash flow.

Maintaining a maximum poverty premium of 44% invites significant regulatory scrutiny and potential intervention. Telco leaders indicate that mandated adjustments to close these gaps could undermine commercial sustainability and force a price increase across all service tiers.

The prepaid ‘poverty premium’

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