Pay As You Go, often shortened to PAYG, is the general term for the concept of a prepay mobile phone.
The concept was initially developed by Eircell in the Republic of Ireland in the 1990s, as a method of letting 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 sucess, 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.
A user would buy a phone, usually pre-loaded with some amount of credit, and would purchase extra credit when required. A call cannot be made unless the user has the amount required for that calls minimum charge. Some networks charge more for the credit than you get in call value, often due to service charges and VAT on phone calls; however the opposite is often true, with users paying, for example, €20 for €22 call credit on Vodafone Ireland.
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 Irelands Meteor Mobile, Pay As You Go is the main mode of operation, with account phones being very much second-class.
Often, Pay As You Go customers pay more for their calls and SMS messages, and are limited in what they can do with their phone - calls to international or premium rate numbers may be blocked, and they may not be able to roam. These are often down to the complexity of managing the credit system for high price calls, or when the user was not on their home network.