October 16, 2007
The wireless phone might be one of the greatest inventions of all time, but these little gadgets are also the cause of massive confusion and financial trouble. It is not a pretty sight to look at the number of complaints filed against cellular companies, especially when it comes to the issue of contracts and termination fees.
Although there are court cases and potential legislation challenging early termination fees and other horrors, they are all most likely years away from completion.
But there's one step you can take today to avoid the hassles of a contract and that's to choose a prepaid wireless plan.
Prepaid plans also called pay-as-you-go plans allow you to purchase minutes in advance, as you need them. There is no contract, credit check or deposit, and most plans won't make you pay an activation fee.
Prepaid wireless isnt for everyone, especially if youre a heavy wireless user or want certain types of phones. However, you should consider going prepaid if
You want to budget your expenses
You or your teen need a limited-use phone
You need a phone only for emergencies
You have bad credit
You want to test-drive the carrier before signing a contracted plan.
Just because you don't sign a contract doesn't mean that choosing service can't be confusing. You still have to do your homework, and do it well.
Where to begin
There is nothing wrong with shopping based on the type of phone or the per-minute rate, but none of that matters if the service doesnt work in your area. Start with checking the coverage map, but understand that its only a general information guide and nowhere near perfect.
Just as with a postpaid plan, a cell phone is basically a small radio. Weather, terrain, and buildings can play havoc with the quality of service. A phone can work fine on one block but not the next.
Until you know the service works well where you need it, youre typically better off by starting with the minimum amount of minutes needed to get the service off the ground.
Prepaid rates and expiration dates
Prepaid rates run anywhere from 10 to 50 cents per minute, but focusing too much on a low rate can be trouble if you dont read the small print. Ill give you an example from personal experience.
I was standing in the prepaid phone section of Wal-Mart. Next to me were a man and woman shopping for a phone. It was obvious they were basing their decision solely from the advertising on the cover of the box.
I heard the woman say, This one is only 10 cents a minute, to which the man responded, Lets go with that one.
Being the helpful and nosy individual that I am, I asked them if they would be using the phone often. They said the phone was just for emergencies. I then pointed out the small print that said to get the 10-cent rate, they would automatically pay a $1.00 daily fee, even if they didnt use the phone.
After they had collapsed onto the floor in shock, I helped them to their feet and proceeded to the restroom where I could change out of my cape and spandex tights and back into my street clothes. Another consumer saved.
Don't forget the tax
When comparing prepaid and postpaid -- or contracted -- service, don't forget to take taxes and fees into consideration. A contracted postpaid plan might have cheaper rates than prepaid but, generally speaking, taxes and fees are usually included in the prepaid rate. This is a huge benefit for budgeting because taxes and fees can easily add 20% or more to the basic monthly price of a contracted plan.
In addition to comparing the rates of various plans, take note of when those rates expire. Based on what the carrier offers, your minutes will be good for anywhere from 30 days to a full year; then you must add more minutes or lose your service and number.
Speaking of prepaying for a year, if you add a ton of minutes to your phone, consider what can happen if the phone is lost or stolen.
Rhonda, of Hobart, Oklahoma, knows first-hand what can happen: My phone was stolen and Ive been trying to get someone on the phone for an hour to disconnect my phone. In the meantime, the person that stole my phone is using up all my minutes! Rhonda fumed.
How to purchase minutes
Retail and convenience stores routinely carry prepaid wireless cards. You can also purchase minutes directly from the carrier, and some carriers will offer an auto-debit option.
Auto-debit sounds like a good idea because you never have to worry about running out of service or minutes. However, using an auto-debit system can cause problems if the carrier deducts too much money or makes a deduction at the wrong time.
Take Irma of Scappoose, Oregon. She told ConsumerAffairs.com that Virgin Mobile prematurely deducted money from her bank account, which caused her bank account to nose-dive into the negative.
I had to call them and try to get it refunded. They said they would. The money still has not been refunded, Irma complained.
We also heard from Steve, of Allyn, Washington.
I called Boost Mobile and requested a single $30.00 re-boost for my cell phone. I checked my bank account and Boost had taken out $60.00. By taking out the extra $30.00, they were going to cause checks to bounce, Steve complained.
The small print
When you buy a prepaid phone, you wont be signing a contract, but youre begging for trouble if you ignore the terms and conditions. I cant tell you which carrier to use, but I can tell you what to look for.
Roaming: Is the rate the same or extra? Some plans charge as high as 69 cents per minute if your phone goes into roam.
Daily or monthly fees: This is one of the most important things to verify. Are you automatically charged a daily fee or a fee for any day you use the phone? You might have a 10-cent rate, but if you're charged a $1.00 daily access fee and make a one-minute call that day, you have in essence paid $1.10 for that one-minute call.
Nights and weekends: Is the rate always the same or does it vary based on the day or time of the week?
Member-to-member calls: Can you call other carrier members without losing your minutes? Some plans allow it but you might pay an additional fee.
Features: Most plans will include voice mail, caller ID, and other basic features. However, if you plan on using text or picture messaging, verify the rate. Ive seen plans that charge 15 cents to send a text message or 25 cents to send a picture.
Taxes and fees: Earlier I mentioned how prepaid rates generally include all taxes and fees. However, certain carriers will advertise 10 cents per minute and then in small print are the words, does not include taxes and fees.
Who comes out on top?
Who's the best carrier? It depends who you ask. The most recent J.D. Power and Associates study found Virgin Mobile took top honors.
The study measured customer satisfaction with current prepaid wireless service across seven dimensions (in order of importance): call quality (24%); company image (19%); cost of service (17%); account management (15%); initial activation (11%); service plan options (8%); and customer service (6%).
Just as in the 2006 study, Virgin Mobile took top honors and did particularly well in cost of service, account management, initial activation and service plan options.
Also ranking above the industry average were AT&T; GoPhone, Boost Mobile and T-Mobile To Go.
To turn the question around, we'd have to say TracFone has the hardest time keeping customers happy, based on complaints to ConsumerAffairs.com. We have a whopping 969 Tracfone complaints in our active database, compared to 84 for Virgin Mobile, 17 for Boost and 1 for Net10.
Some other carriers -- like AT&T's Go -- aren't broken out from their parent companies in our database so at the moment we're not able to count them accurately.
The J.D. Power study also found that prepaid customers use 218 minutes per month and spend an average of $38.00 when purchasing additional airtime. Comparatively, postpaid customers average 528 minutes of use per month and pay $71.00.
Before you hit the stores, you might want to look at the various carriers' Web sites to familiarize yourself with what they have to offer. We also suggest you take a look at the complaints in our cell phone department to see what horrors can result if you make the wrong choice.
Here's a list of major prepaid players. Note that some of these carriers were not included in the 2007 J.D. Power study.