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Saving money on cell phones

March 18, 2009 9:11:19 PM PDT
In a world of cell phones, where many of you have them and seemingly use them all the time, Oscar Pacheco is dialing into a cell phone plan that could be more economical. He is joining a growing number of people swapping traditional contract plans for prepaid phone plans. Consumers pay in advance for the number of minutes they anticipate using.

Cell phone users who switch to them can cut their monthly spending significantly - particularly those who talk 300 minutes or less a month, says the Telecommunications Research and Action Center, a Washington, D.C.-based nonprofit.

That, of course, is precisely why service providers prefer long-term contracts instead. Most don't advertise prepaid plans widely, instead targeting them largely at low-income users. But all major carriers offer prepaid phone plans, and consumers are increasingly signing up.

The number of U.S. prepaid wireless subscribers is estimated to have grown by some 19 percent as the economy slowed last year, a climb of nearly 8 million to 49.5 million. This year the number of users is expected to rise another 13 percent compared with just 3 percent for contract subscribers, according to the Yankee Group, a Boston-based research firm.

It's still a much less popular option than in other developed countries, where prepaid cell phones typically account for a third or more of consumer phone use. Here, the figure remains just under 20 percent despite the recent growth.

A combination of consumer uncertainty and myths about prepaid phones appears to explain why U.S. use is lower, according to the New Millennium Research Council, a non-partisan think tank in Washington, D.C., specializing in telecommunications issues.

Many people wrongly assume that switching to prepaid would always incur expensive termination fees on their existing contract, the group said. Others figure they'd have to change cell-phone numbers, which isn't generally the case. Or they simply don't know what prepaid is all about.

The basics on prepaid plans are this: You buy a phone for anywhere from $10 to $200 and then pay for use in advance, based on the carrier's specified rates for each minute of talk or text message. You can replenish your minutes when you run low or wait till the phone goes dead when they're used up.

Unlimited no contract plans can also benefit consumers. According to BillShrink, a consumer who uses their cell phone only five days a month and for 50 minutes total would spend $10 a month on an AT&T "Pay As You Go Unlimited Talk" plan.

Compare that to one of the least expensive traditional plans available -- Sprint's "Basic 200" plan, which allows 200 "anytime" minutes as well as free calls on weekends and after 9 p.m. on weeknights. The Sprint plan costs $29.99 per month, about $20 more than what the consumer would spend on the prepaid plan. While prepaid customers make up a small percentage of the market, phone companies are offering certain products for them.

While the snazziest phones such as Apple's iPhone generally aren't available under prepaid, you can still find models that take pictures, play music, offer e-mail or provide Web access if you're willing to pay a higher initial cost.

Even the loquacious can benefit.

Consumer Reports said in its January issue that a family with two cell phones that talks 700 minutes per month could save $100 to $220 a year buying per-minute packs from Virgin Mobile as opposed to large carriers' contract family plans. And for really incessant talkers, Virgin's $80 prepaid unlimited plan will save them $240 a year compared with unlimited contract plans from the major carriers.

Fees can still trap the unsuspecting prepaid user. Some plans charge a daily user fee whenever the phone is used. Others may deduct text messaging and Web access from the minutes.

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Information from ABC News and The Associated Press used in this story.

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