Prepaid cell phones can help dial up lower costs

February 21, 2009


— Marty Focazio knew his cell phone calls were costing him a lot, but it was still a bit of a shock when he did the math and learned just how much it was per minute.

Using a spreadsheet to tally up the total monthly charges including taxes for all his voice minutes and text messages, he discovered he was paying as much as 42 cents each for his 400 to 500 minutes a month. Not exactly what the provider had touted.

“You see the ad that says $59 a month, but then you add it up and you realize, ‘Holy crap, my phone bill is $120 a month!’” and sometimes much higher, said Focazio, of Upper Black Eddy, Pa.

So he did the budgeting equivalent of dialing 911: He turned in his smartphone and got a prepaid model from TracFone without all the bells and whistles. Now he has spent $160 total on it in the five months since.

“It’s nice to just have an extra 50 or 100 bucks a month,” said Focazio, 44, a strategist at a digital media agency in New York.

Prepaid phones, which provide a set number of minutes, are becoming a more appealing financial option as careful household budgeting becomes paramount in a tight economy.

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 prepaid 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.

“Certainly with the economy being what it is, prepaid is resonating even more,” said Jayne Wallace, spokeswoman for Virgin Mobile USA, which sells its prepaid phones in outlets like Wal-Mart and Target stores and drugstore chains. “Prepaid is now a viable option for more people.”

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 nonpartisan 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.

Plan options differ. 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.


Janet Lowther 9 years, 2 months ago

I've been using pre-paid cell phone service for years. It typically costs me $25 for three months. And I usually have a credit balance left when the three months are up, which accumulates for future use.

That is on what AT&T now calls a Go Phone. I've looked at the Trac phone, but AT&T's coverage is a lot better around here..

Of course I'm not exactly a talk-on-the-phone-all-the-time person.

just_another_bozo_on_this_bus 9 years, 2 months ago

I've got a 1000-min/month plan (T-mobile), but I usually don't go over 400 minutes in a month. However, about every third or fourth month, I go well over 1000 (which is annoying, cause by nature, I'm not a talk-on-the-phone-all-the-time person, either) so going on a 600-minute plan would likely be more expensive.

Does anybody know if there are pre-pay plans that would make sense for that type of usage?

Kyle Reed 9 years, 2 months ago

That's just it bozo, there are no pre-pay "plans". You put as much or as little time on the phone as you want. My phone is a net10 phone and I purchase 300 minutes for $30. If I need more time at anypoint during the month I simply use my phone to purchase more minutes as I have it tied to my debit card.

Chris Ogle 9 years, 2 months ago

I have the no-pay plan..... very quiet. Cracks me up when someone sends a text message to my e-mail. I send back a merril type response, which of course, wont fit on anyones phone.

just_another_bozo_on_this_bus 9 years, 2 months ago

"Plan" was the wrong term-- I guess I was trying to find out what the per minute charge is. At $30 per 300 minutes, it really wouldn't be any cheaper than what I currently pay, especially when usage is just below but not over 1000 minutes.

jamesWtsn 9 years, 2 months ago

42c a minute! That's really bad. Especially if you happen to be locked into a contract for two years. Well, I use a NET10 prepaid which ALWAYS cost me 10c a minute, no hidden charges. Plus, I don't get the surprise bill at the end of the month. Never had a dropped call either, which is a bonus.

Frugalbee 9 years, 1 month ago

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