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Traditional cell plans can be confining

When they were first introduced in the early 1980s, cell phones were a status symbol, owned by an elite few. Now everyone and his kid has one. In 2004, some 182 million wireless phones and related devices were operating in the United States. Worldwide, an estimated 1.2 billion people will own a cell phone by the end of this year. Cells outnumber land-line phones, which are absent in many households.

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Yet despite their convenience and broad acceptance, many of these handy gizmos have a dark side. Although cellular technology can be liberating, the language of traditional service plans can be anything but.

Traditional contracts: Corleone-style?
Consumers say that they find it difficult to compare cell-phone plans because information on terms, pricing and service is confusing and not presented in a uniform manner. Carriers, for their part, often fail to clearly and fully disclose the true cost of their plans, adding various surcharges and fees to consumers' bills only after service begins. Consumers also complain that they cannot adequately judge the quality of the cellular service in their area before choosing a provider and plan. There is no try-before-you-buy option, for example, that could help a potential customer gauge whether a service will suit real-world needs.

Worst of all, should they end up frustrated or dissatisfied with carriers' billing errors, inadequate customer service or poor coverage, consumers generally discover too late that, by signing up with a traditional cellular provider, they've locked themselves into long-term contracts with hefty early termination fees.

Cellular lock-up
A recent survey conducted by the U.S. Public Interest Research Group, or U.S.PIRG, a public-interest watchdog organization, found that 47 percent of those polled said they would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn't have to pay an average penalty of $170 per cell phone to cancel their service contracts.

"Consumers are now basically captives, locked in a cell by early termination fees," says Ed Mierzwinski, U.S.PIRG consumer program director. "These penalties have cost consumers more than $4.6 billion in the last three years -- that's $2.5 billion in actual penalties paid and $2.1 billion in lost benefits from consumers who either couldn't afford the penalty or who didn't think it was worth paying."

Early termination fees are also onerous because they do little to advance competition in the industry or bring about improvements in levels of customer service. They also give the cell phone service provider unfair leverage over consumers in any disputes.

Many carriers, for example, require customers to extend the term of their contracts whenever they upgrade to a better plan or purchase a new phone. As a result, if, after one year of a two-year agreement, a customer needs to increase the number of minutes of free cell phone usage or wants to switch from a "local" to a "national" plan, then they must either enter into a new contract, extending the agreement (along with the early termination fee) for another two years, or pay an early termination fee and switch companies.

 
 
Next: Prepaid cellular's main appeal is a no-contract approach.
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