How to save money on: cell phones
Posted: Wednesday, February 18 2009 at 05:00 am CT by Bob Sullivan
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Here are two data points that don't jibe: The average cell phone user pays $63 each month for their service, yet nearly half of cell users spend less than 200 minutes a month yakking on those phones.
A lot of folks must be overpaying.
For years, the cell phone industry has seduced Americans into long-term contracts that have saddled them with high fees and broken their shopping spirits. As a result, many consumers don't spend a lot of energy comparing services, prices, and bundles. That’s a mistake.
Even in this tough economy, consumers are clinging to their phones with both hands, even as they cut backs in other areas. A survey conducted by Virgin Mobile recently found that nine out of 10 Americans are dining out less frequently and 41 percent are buying fewer groceries, but only 32 percent are reducing cell phone spending. Yes, we should consider the source of that study -- a cell phone firm -- but the numbers ring true. Do you know anyone who has given up their cell phone?
Another recent study, conducted by the New Millennium Research Council, shows how little people think about saving on cell phone bills. It found that half of all cell phone users have no idea when their cell phone contracts end. Blind commitment might work in relationships, but it’s terrible in business contracts.
Consumers seem to think they have few options for saving money on mobile service. That's hogwash.
In fact, the landscape for cell phone users has improved greatly in recent years. Most providers are better behaved now, after complaints and lawsuits over unsavory practices forced them to clean up their acts. Complaints about unauthorized and unexpected contract extensions are down, for example. And customer satisfaction has soared from 29 percent to 42 percent in one year, according to Consumers Reports.
Even better, early termination fees are no longer an enormous obstacle to switching providers. All the major carriers now prorate termination fees – the longer you’ve been in the contract, the lower the fee -- which means you have no reason to avoid shopping around. For the purposes of this story, we'll divide users up into two groups: light users and power users.
LIGHT USERS
There's something else the major carriers are doing that should get your attention: They're offering prepaid cell phone service. This is where the dramatic savings can be found.
Pay-As-You go phones were once the domain of those with bad credit, or infrequent users who didn’t mind older models and off-brands. Apparently, Americans think that's still true. The Cellular Telephone Industry Association says only 17 percent of U.S. users have prepaid plans. In Europe, prepaid plans make up more than half in the market in some countries, with good reason.
Callers who invest in a long-term contract with a carrier encounter an impossible dilemma : They are either paying for minutes they don't use or are socked with outrageous 40-cent-per minute overage charges. Either way, bulk minute plans are a game of cell phone roulette.
Prepaid callers, meanwhile, only pay for the minutes they use. When they run out, they buy more. Simple plans for 300 monthly minutes can be had for around $30. The New Millennium Research Council estimates that perhaps 25 million Americans could save money by switching to prepaid.
Anyone who uses fewer than 200 minutes per month should consider this option. And heavier users – those who talk up to 400 minutes per month -- should at least look into it.
Sadly, the same folks who brought you "confusion marketing" with those crazy nights and weekend discount plans are now doing their evil magic in the realm of prepaid phones. They are offering $1-per-day limited plans, $2-per-day unlimited plans, prepaid calls with connection fees and more -- all the things you've come to expect from the cellular industry. Carefully examine all the tack-on fees when considering prepaid phones. The good news is that if you find a prepaid firm is charging more than you expected, you can easily cancel and switch providers.
Power phone users who spend upward of 1,000 minutes per month on a phone or who use advanced features like e-mail are still better off with a contract phone. But for others, the savings are real. For a fantastic side-by-side comparison of typical 200-, 400-minute and 1,000-minute plans follow this link on About.com.
POWER USERS
People who use the Web, e-mail, broadband Internet access for laptops and other fancy cell phone services don't have a prepaid option to fall back on. But that doesn't mean savings aren’t available. The key, as with all transactions, is knowing your bargaining position. That means always knowing your contract end date and exactly what your early termination fee might be, since it's probably shrinking as time goes by. If you're paying $120 per month for phone service, a $100 early termination fee shouldn't scare you away from shopping around.
Sprint started a price war for power users last year, offering its $99 Everything Unlimited Plan. No matter how often you use your phone or what you use it for, that plan should act as a reference point. If you're paying more than $100 per month, you should investigate other options.
Most carriers offer similar plans, but read the fine print. Everything doesn't always mean everything. At some carriers, all-you-can-call packages charge extra for text messages, for example.
There are other devils in the details. Carriers are still charging handset upgrade fees when consumers renew contracts ($18 to $36) and activation fees when consumers sign up ($35). These fees should be included in the price of the phone, but they are rarely made clear by salespeople. Scan your bill for at least two months after signing a new contract to find this fee, then complain about it. Many consumers who do talk their way into refunds.
An intriguing option for power users who are overwhelmed by their 15-page cell phone bills is to sign up with Validas, a new company that promises to analyze your bill for you. Consumers simply upload their bills at FixMyCellBill.com and, for $5, the firm will churn out a report full of recommendations. Typical recommendations tell consumers to switch the number of minutes they are paying for or change providers. Tom Pepe, who founded Validas, says 80 percent of customers can save money by following his firm’s advice. And 5 percent of the time, government taxes such as the Universal Service Charge are misapplied, he said. The site has limitations, however. Only an analysis of many months' bills can provide a true picture of usage, leading to better recommendations -- and Validas charges extra for those.
One option that few consumers understand is temporary "power user" status. When unexpected life events occur -- such as a birth or a death -- cell phone usage can spike. Rather than pay an exorbitant overage charge for a single month of extreme use, many carriers will let customers temporarily switch to higher-minute plans. When the period of heavy use passes, you can switch back. The same holds true for foreign travelers, who are often allowed to add international calling to their plans on a short-term basis. But beware: When you do such a switch, make sure your contract hasn't been extended by the carrier.
Power users should take advantage of warnings that they are about to exceed their allotted minutes. Most carriers will let you sign up for warning texts and all let you monitor usage online.
Finally, consumers should relish the time when they have the opportunity to become a cell phone free agent. Just because your contract ends is no reason to rush out and sign a new one. Take your time to shop around. I have heard some companies are layering on extra fees to consumers who use their service on such a month-to-month basis. Getting such fees removed is easy. Just call. Providers who know you aren’t on a contract will be very concerned about losing you as a customer. But in order to get that fee removed, you have to notice it.
FAMILY PLANS
I consider anyone on a family plan to be a power user, because all those handsets and all those minutes cost a lot. I've interviewed families that paid $800 in early termination fees to get out of onerous cell phone contracts. Family plans can offer savings when teenagers are involved, but parents should give serious consideration to prepaid phones for kids, which will teach valuable lessons in budgeting their time. Many carriers also offer automated limitations on kids’ cell phones, such as AT&T's Smart Limits plan, which shuts down the phone after a certain number of calls or text messages (emergencies are exempt). Such a plan is the best way to avoid a surprise $10,000 cell phone bill.
Parents should also educate their children about "premium" text message services, which can cost $1 or $2 per message. Even unlimited text plans and “Everything” plans don’t cover premium text messaging.
How do you save money on cell phones? Leave a comment below or visit Newsvine and become a member of the Red Tape Raiders and be a consumer advocate!
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