By Bob Sullivan Technology correspondent
msnbc.com
updated 3/2/2010 7:37:22 PM ET 2010-03-03T00:37:22

Buying a cell phone is a bit like applying to college — at least it seems that way, given the complexity of the task, the commitment required, and the myriad of choices.

Peter Pham, CEO of Billshrink.com, often points out this hard-to-believe statistic: when you consider all the major service providers, all the handsets they sell, and all the various iterations of service plans, there are more than 10 million possible combinations. No mere mortal could possibly decide intelligently from among all those choices.

Meanwhile, new phones are constantly being released, new features added all the time, and new plans are offered every few months. There’s an unlimited calling plan price war going on right now, for example. (Don’t assume, by the way, that Verizon’s $69 plan will save you money. There are lots of catches). That’s why it’s so important to avoid two-year contracts, and so valuable to be a free agent in the world of cell phones. When the next iPhone is released, who wants to be in the month 5 of a 24-month contract?

As usual, technology can help. Billshrink offers an intriguing service. Users upload their past cell phone bills and get recommendations on cheaper, or better, plans. Validas (MyValids.com) also allows users to upload bills, but that site looks for patterns which suggest consumers are overpaying through hidden fees or unused minutes.  And, as you’ll see in the excerpt below from "Stop Getting Ripped Off," online calculators might help you decide that you don’t need a cell phone service contract at all — pay-as-you go phones are a great choice for millions of overpaying Americans.

Reprinted with permission

The basic trouble with cell phones is the ridiculous nature of their pricing, which boils down to this: “We’ll charge our best customers the highest prices!” Customers pay for an arbitrary amount of calling minutes during arbitrarily picked times. Then, they are extorted an outrageous amount for excesses. “Excess” minutes are typically charged at a 600 to 800 percent higher rate than in-plan minutes. This is a game consumers can’t win because in most services, unspent minutes go into cell phone never-never land. That leaves the most practical advice for consumers at this: When picking a plan, you are safer taking the “insurance”— the most minutes you’ll need. Yes, you will essentially be paying extra for “protection.” But at least this way you’ll have a steady bill, and you’ll avoid the surprise $400 cell phone bill.

Some cell phone providers offer a little-known feature to combat this kind of minute waste. Verizon, for example, will let customers call in the middle of the month to upgrade their plans ... then allow a downgrade later on. This feature comes in handy if you have a family crisis and suddenly find yourself making fifteen hundred minutes of calls. It’s always worth calling and asking about a temporary plan change if you are in a situation like that.

The rules for international travel are similar. A two-week trip to Canada, for example, could cost you $500 in international calling — or $20 for a one- month upgrade to a North American Calling Plan.

Always call to see if you cell phone provider will make short- term plan changes. Providers don’t advertise them (why would they?), but they do exist.

When asking for such a change, be extremely careful about your intentions, however. Make it clear you don’t intend to renew your two-year contract with the company. Many firms will take any excuse to lock you up for another two years and will even engage in unethical behavior to do so. You should always end every conversation you have with a cell phone operator with the question “When does my current contract expire?” Then you should double-check the expiration date on every bill that’s sent to you.

Richard Branson, head of the massive Virgin empire, discusses various misleading cell phone company tactics in his book "Business Stripped Bare." While designing his popular prepaid service, Virgin Mobile, he realized that most cell phone companies were engaged in what he calls “confusion marketing.” The real price of the phone is unduly cheap, but the real money is in hidden fees and oppressive contracts. The monthly price is obscured by still more fees (have you ever got the same cell phone bill twice?) and leaves consumers always paying either too little or too much. Consumers rarely understand what they are buying and end up suffering with shoddy service because they have no alternatives. Half of U.S. cell phone users say they don’t use all their minutes every month, and 20 percent say they have never used all their minutes in any month, meaning they are all wasting money. Finally, the best customers— the ones who are most loyal and use the service most often— pay the highest prices. Exceed your thousand- minute-per-month plan? You’ll pay forty or fifty cents per minute extra. No other business penalizes its best customers like that.

{…}

Branson’s Virgin Mobile was among the first to offer a cell phone alternative that more consumers should consider — prepaid, or pay-as-you-go service. These phones give consumers far more control over their bills. You buy minutes up front. You use them. When they’re gone, the phone won’t work anymore, until you buy more minutes.

The savings come from two directions: First, there’s no overpaying for cell phone bill “insurance.” You’ll never pay for 1,400 minutes per month but only use 175. It’s really a good deal for low- minute users.

Second, as we learned earlier, consumers always spend less when they pay as they go— rather than through some automated method. It’s much easier to keep track of your calling habits, and to make better choices (“I’ll wait thirty minutes and call after nine p.m. because I’m out of daytime minutes”).

Plenty of folks could save a bundle by dumping their contracts and switching to prepaid. The average cell phone user pays $63 each month for service, yet nearly half of cell users spend less than two hundred minutes a month yakking on those phones. That means lots of people are overpaying. It’s not hard to find prepaid services for $30 a month that provide two hundred minutes of talk time ... with no contracts. You can buy a new phone, or switch providers, at any time.

If you talk less than two hundred, or even three hundred, prime-time minutes per month, you should seriously consider a prepaid plan.

For years, the major cell carriers pushed their long-term-contract phones with ferocity and exclusivity. But since 2008, all the big mobile providers — Verizon, Sprint, T-Mobile, and AT&T — have come up with their own prepaid phone plans and marketing strategies.

When Virgin Mobile and a host of smaller companies started offering really competitive prices— such as $50 a month for unlimited minutes, with no contract — the big providers had to follow suit.

As is customary, however, the beautiful simplicity of month-to-month phones is being disrupted by the complexity-loving, Gotcha-creating sales teams at the big four. For example, Verizon has a great-sounding pay-as-you-go plan that charges consumers only 99 cents per day for a no-contract phone. Calls outside the Verizon network cost 10 cents per minute, though. For $1.99 per day, you can call anyone for free during nights and weekends, or for $2.99 per day, you can call anyone — really, anyone — for free. That’s about $90 per month, however, which is a pretty standard price for unlimited calling plans. And don’t forget: There’s a $ 5-a-month charge for two hundred texts, a 99-cent-per-day fee for mobile Web access, a $25 activation charge.

And don’t forget: Minutes you buy can expire in as little as thirty days.

Deciding between all these prepaid plans is at best a hassle, but at worst a new Gotcha minefield. As always, I favor simplicity over all else. Pick a plan that has a clear cost that you understand, and you’ll be happy. There are some great tools on the Internet to help. My favorite is the PrePaid Cell Phone Plan Chooser, maintained by About.com. Users answer questions about their typical behavior, and the quiz spits out appropriate plans. Similar plan choosers can be found all over the Web. As an example. I imagined a light-use caller I know and told the About.com quiz that she makes only three to four calls per day, uses fifty-one to a hundred minutes per week, makes about half her calls at night and on weekends, and sends more than ten text messages per day. Here are some of the options the finder spat out to me. Plans change all the time, but this gives you a good idea of the savings you could be enjoying.

For sixty minutes per week:

Net10
Refill card: $30 at least every sixty days
Average monthly cost: $26.08

Virgin Mobile— Pay by Minute
Refill card: $20 at least every ninety days
Average monthly cost: $33.08

T- Mobile— T- Mobile To Go
Refill card: $50 at least every ninety days
Average monthly cost: $33.92

For eighty minutes per week:

Net10
Refill card: $30 at least every sixty days
Average monthly cost: $34.75

Virgin Mobile— Pay by Minute
Refill card: $20 at least every ninety days
Average monthly cost: $41.75

Verizon Wireless— EasyPay
Refill card: $50 at least every thirty days
Average monthly cost: $59.08

If you can’t use your cell phone during work hours anyway, prepaid plans are a great option (are you listening, teachers?). Steer your calling to nights and weekends and you can get pretty solid service for around $30 a month and change phones at any time. That’s why the smartest cell phone users I know use a prepaid service instead of a contract.

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments