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Getting the best deal on prepaid cellular service

If you think everybody has a cell phone, you're not far wrong. But you might be surprised by how many of those phone junkies are using prepaid service.

"It's one of the fastest growing segments of the marketplace," says Nick Regas, a vice president with Atlantic-ACM, a Boston-based consulting firm that estimates that 16.9 million people will be using prepaid cellular service by the end of the year.

As traditional cell service reaches saturation, providers are taking another look at the prepaid market.

Prepaid cellular is not cheap. Even though much of the market is geared to teens and people with poor credit or no credit, the companies ask users to "make a little bit of an investment," says Regas. The typical startup package, including the phone, charger and some minutes, runs about $100, he says.

And users are often paying a premium for prepaid minutes, says Charles Mahla, a senior economist with Econ One Research Inc., an L.A.-based economic research and consulting firm.

In one 1999 study, he found that 300 minutes with the same company cost 25 cents more per minute for prepaid customers.

"It was more than double what the minutes would cost you on a postpaid plan from the same carrier," Mahla says.

What do minutes cost? That depends on which plan you're using and where you're calling.

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Howard Segermark, executive director of the International Prepaid Communications Association, estimates that domestic minutes average between 13 cents and 18 cents on nationwide plans.

Regas has noticed prices ranging from 12 cents to 35 cents per minute, especially when customers take advantage of volume discounts offered by carriers. But he's also seen the cost of prepaid cellular go as high as 60 cents per minute.

Prepaid plans, and the phones that come with them, also may provide less in the way of bells and whistles.

"Postpaid plans traditionally offer more technologically advanced phones," Regas says.

Because of the cost, prepaid is probably not the way to go if you're the type who has a phone to your ear every second, says Mahla.

And if you're getting a cell to stick in the glove compartment just for emergencies, prepaid cellular might not be practical. With most plans, minutes expire every 15 days to 60 days -- meaning you have to remember to buy more or you're stuck in more ways than one. With or without minutes, you can still call 911, but that won't help if your car breaks down.

Know yourself, shop around
Before you buy you also want to examine your calling patterns. If you need a phone to call across town to keep in touch with your family, you'll have much different needs -- and expenses -- than someone who is using the phone for business while traveling.

"Understand your using patterns," says Mahla. "Carriers make a lot of money from consumers who are on the wrong plan."

Here are some questions you need to ask yourself before you start calling providers:

  • Where are you likely to be when you use the phone, where is the party you're calling and how does that fit into the carrier's coverage area? What's the roaming fee (the charge for making an out-of-area call)? And would a plan with low-cost long distance be a better option?
  • How often do you need to talk and for how long? Check a few months worth of phone bills to give you a general idea. You might be surprised just how much time you use. But if your usage varies widely every month, look for a plan that lets you retain, or "roll," your unused minutes.
  • And when will you be placing calls? The ever-popular nights and weekends? Or the more usual weekday 9 to 5? Companies are much more willing to give deals on low-priority calling times, but that doesn't help if you need the phone for business hours.

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-- Posted: July 15, 2003
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See Also
Getting a deal on a cell phone
Cell phone plan comparison worksheet
Frugal U. definitions
More Frugal U. stories

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