Financial Resource Center


Pay-As-You-Go Wireless: Prepaid Is Ideal for Light Cell Phone Users

by Louisa Downey / August 25th, 2003

Wireless phone contracts are like an all-you-can-eat buffet--you over-indulge yourself because it's there and you paid for it, not because you need it. A standard wireless service still can be an excellent value for heavy users but, if you're looking to trim a few inches off your budget, á la carte wireless is the way to go. If your typical wireless phone conversation is, "Honey? Raisin Bran or Coco Puffs?" you may be what the wireless industry now calls a glove-box, or low-volume, user. You're also probably paying for hundreds of minutes every month that you never use. If you're tired of being locked in to service agreements and monthly plans, prepaid wireless phones can save you hundreds of dollars a year. Typically, you'll pay a much higher per-minute rate in exchange for a cheap wireless phone that's there when you need it. Sound like a plan? Hold on. Before you switch from your monthly plan, consider a few things.

Counting off the minutes

A good starting point is to figure out what you need from a wireless phone. Most prepaid services offer caller ID, voice mail, and call waiting at no extra charge but vary widely on long distance. You'll also need a phone that has the capability to run on analog and digital networks--you'll get the best coverage and still have access to digital services such as text messaging. Next, look at your itemized monthly bill to see how many minutes you really use. "If you don't need a large 'bucket' of mintues, you should consider prepaid wireless," says TracFone Wireless' Sherri Pfefer. "Typical prepaid users are those who want to control their wireless costs, such as senior citizens, the credit-challenged, parents purchasing for their children, and emergency and low-volume users." TracFone has been offering prepaid wireless service since 1996, and with more than 2.4 million customers, it's the largest prepaid wireless provider in the U.S. As with most prepaid wireless phones, TracFone can be bought off the shelf at most major retailers and requires no credit check and no monthly contract.
Read the fine print--it outlines what you get, for how long, and what you'll pay for it.
Minutes expire in anywhere from 30 to 90 days, depending on the carrier. You can renew your airtime with prepaid cards available online or at the store. Most carriers will roll over your unused minutes when you buy a new card. TracFone sells airtime cards in increments of 30, 60, 150, and 300 units, as well as a one-year card with 150 anytime units for $94.99--ideal for the bare-bones user. Unit values (or costs) vary depending on whether your call is local, long distance, or roaming.

Going the distance?

Before buying a prepaid wireless phone, consider the value of the services your standard plan provides. If you make all your long distance calls on your wireless phone, your plan may pay for itself by saving money on your home phone. Although prepaids usually include long distance, you'll pay more by the minute and could run into restrictions, particularly if you travel. Ask your wireless dealer for a map of each carrier's coverage area before you sign. Consider pairing a prepaid phone with a long distance calling card. A large number of online companies offer prepaid national and international long distance calling cards for as little as two cents a minute.

Ouch, that hurts

On the surface, prepaid is not cheap. Some quick mental math will tell you that airtime costs between 12 cents and 80 cents a minute. But remember that with standard monthly plans you're paying $40 or more whether you use the phone or not. The more prepaid airtime you buy, the less it costs. AT&T Wireless' Free2Go prepaid service offers a $10 card, at 50 cents a minute, as well as a $25 card at 35 cents and a $100 card at 12 cents a minute. Plus you have 45 days to use your minutes. Text messages cost only 10 cents, and you can receive unlimited messages at no charge. If you're a super low-volume user, look for the prepaid phone with the most distant expiration date. You can find service for around $7 a month.
Think carefully before snapping up that free phone with the mail-in rebate.
The quality and clarity of prepaid should be as good as standard plans. "There are no differences when it comes to the clarity of the call, whether it's local or long distance," says Pfefer.

Should you go with a household name?

Going with a big name isn't always a guarantee of better service. Carl Hilliard, president of the wireless industry watchdog Wireless Consumer, suggests looking at the network, not the name. "One of the things about prepaid is you have to look at the system the provider is going to use," he says. "If you're going from a monthly plan to a prepaid, stay with the carrier you have so you can use the phone you have," Hilliard says. However, in some cases you might have to purchase new equipment depending on the type of prepaid purchase you'll be making. And think carefully before snapping up that free phone with the mail-in rebate. The technology the phones use soon may be obsolete. Talk to your wireless dealer and make sure you're buying a phone that meets your needs. Wireless Consumer tracks complaints lodged by consumers against wireless carriers. "The prepaid company we've had the fewest complaints about is Tracfone," says Hilliard. Wireless Consumer representatives drove from Florida to Michigan to test Tracfone's call connection rate. All the calls went through, says Hilliard. Prepaid wireless is also popular with parents and seniors. "We're finding more and more retired folks want to use a prepaid plan," says Hilliard. With a prepaid phone, parents can allot their children a monthly "airtime allowance" and control their monthly wireless costs. The Federal Communications Commission (FCC) requires carriers to complete calls to 911 at no charge. "Don't throw away that old phone--you can use it for 911," says Hilliard. Then again, 911 won't help you fix a flat tire or let your pets out. Hilliard says large carriers aren't enamored with prepaid because it's not a big moneymaker. In some cases, prepaids have a much scaled-down coverage area and run on older network technology. "You're buying a lot less service," says Hilliard. The consumer has to decide how valuable that extra service is, he adds.
Look at your itemized monthly bill to see how many minutes you really use.

How much for your troubles?

Prepaids are not as seamless as standard plans, but the payoffs are greater control over your costs and freedom from monthly contracts. Some carriers allow you to refill your minutes with a credit card from your wireless phone. Others sell cards exclusively at stores or online. But here's an idea; keep a few refill cards in your wallet or glove compartment. The clock won't start ticking until you activate them. You also can buy more minutes around the holidays if you expect to make a lot more calls. Other drawbacks include less protection and less continuity. Many carriers will eventually discontinue your phone number if you fail to buy a refill card before your minutes expire. Lose your phone, and you're probably out of luck. "Prepaid plans let the time run out and you can lose your minutes," Hilliard cautions. For a low-hassle prepaid, try AT&T Wireless' "hybrid" GoPhone. For as little as $19.99 a month, you get 80 anytime minutes and unlimited nights and weekends. Like traditional prepaids, there is no contract and no monthly plan. When your minutes run out, AT&T Wireless automatically debits your credit card another $19.99. The plan is less restrictive than most basic monthly plans and includes a nice package of services. AT&T Wireless' Susan Ramsey says the GoPhone is an all around better deal than Free2Go for consumers who are seeking lower rates on their calls and have a credit card or credit union/bank account to establish recurring billing--a requirement for GoPhone customers. GoPhone operates on AT&T Wireless' newest GSM network. "With the Free2Go phone, you're paying a premium per-minute rate. GoPhone is a better rate," says Ramsey. Prepaids are a great way to test the wireless waters but there is a mind-blowing array of prepaid wireless products on the market, each with fine print you need a microscope and a law degree to decipher. Read the fine print--it outlines what you get, for how long, and what you'll pay for it.
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