International callers beware. Phone cards may seem like a cheap way to make an overseas call, but it's hard to tell whether you're really getting their money's worth.
That's what our most detailed study yet of prepaid phone cards used for international calling revealed. Our secret shoppers bought over 130 cards in more than two dozen shops throughout New York state, buying them at stores ranging from bodegas to gas stations to national chains. New York state, which has a large immigrant population, is one of the areas where phone cards are most popular.
Prepaid phone cards are prevalent in immigrant communities, particularly among Hispanics. They provide an inexpensive connection to family and friends in immigrants' home countries—no credit card required. Calls can also be substantially less expensive than those made from a standard landline phone.
But our shoppers found that about three-quarters of the phone cards they bought didn't disclose calling rates. And, given the multitude of murky fees and surcharges imposed by many of the cards, being an informed buyer is nearly impossible.
What callers get can vary big-time. One card offered more than 20 hours of calling to Mexico City for $5. The Chocolate card from JTI provided only 5 minutes for $2. When we tried to call JTI's customer service number, each time we got only a seconds-long recording: "Thank you. Goodbye."
Some cards imposed fees and sapped the value of a card before we actually completed a call. Other cards listed fees and surcharges that weren't imposed when we actually called.
Among other problems:
In recent years government agencies and independent groups have charged some phone-card issuers with problematic marketing practices, such as failure to provide the full number of advertised minutes and imposing hidden or confusing fees that can sap the value of cards before they are fully used. Our 2011 report on phone cards found that cards failed to properly disclose maintenance and other fees.
Generally, you get all the minutes claimed for a card only when you use it for a single call. Otherwise, the value of the cards can be eaten up in fees and surcharges instead of actual time spent calling friends and family.
"People who purchase these cards tend to be low-income people," said U.S. Rep. Eliot Engel (D-N.Y.), who has sponsored legislation to require accurate disclosure of phone-card terms. "They should not be cheated."
But the phone-card industry defends its record. Gene Retske, executive director of a newly formed trade association of prepaid-phone-call providers, said problems tend to be "minuscule" compared to the size of the business. As recently as 2009, about $2.1 billion was spent on phone cards for international calling, according to the Telecommunications Industry Association.
"Eighty or 90 percent of the cards that are sold out there are two-dollar and five-dollar denomination cards and they're for one purpose, and that's to make one call. So the consumers typically don't have a problem with that, " said Retske.
Regular users of phone cards we spoke to had a different view, seeming resigned to the fact that many cards were going to provide fewer minutes than they advertised.
"They're going to steal something from you—it's going to happen," said Noel Godoy, 40, of Huntington Station, N.Y., who buys a $2 card about three times a week to call family back home in Guatemala. "It's kind of the risk we take."
We've created a guide in eight languages to help you, a family member, or a friend or colleague navigate the confusing world of prepaid phone cards. Download a PDF of the guide in Arabic, Chinese, English, French, Hindi, Russian, Spanish, or Urdu.
Check out the Spanish version of this investigative report.
We found cards ranging in cost from $2 to $10 in convenience stores and from $10 up to $30 in chain pharmacies and national retailers. Many of the cards were marketed for calls to particular countries or regions, such as DSA/Entrix' Latino and Simple2Call's Mother India card. Others were pitched for general international calling, such as IDT's PennyTalk card. Some of the cards, such as DSA/Entrix' Blue New York and STi's Rico Rico New York, were specifically aimed at buyers in New York state.
Among our findings:
In some stores, particularly the chain stores, we found the cards on wall racks or spinning racks where we were able to examine them before buying. In many stores, however, the cards were on racks behind the counter and we had to ask to see the cards before buying them.
Card buyers told us that they often rely on store clerks to recommend cards. In some of the smaller stores we found the clerks to be somewhat knowledgeable about the cards and could point us to the newer ones or ones that might be better for calling a particular destination. In many other stores, particularly the chain stores, there was little assistance available in choosing cards. (When a shopper asked for help picking a card to call a family member in Belgium, one store clerk asked where Belgium was.)
Card issuers often bring new cards to market to replace older ones; in some cases cards we saw on our first visit to the store weren't available when we went back a few weeks later.
In most cases, we got a physical card that was activated at the cash register. The cards had a scratch-off coating that concealed the PIN needed to use the card. In a few cases, we received a printed receipt that contained the card access number and the PIN. That may not be as helpful since the receipts are more likely to be lost or damaged than a sturdier card.
Some of the cards we bought expired in as little as 30 days after they are first used; others had longer expiration periods or did not expire until their minutes were used. One of the cards we bought was past its listed expiration date, but it still worked.
Although the cards are subject to state and local sales tax, some of the smaller shops didn't charge the tax.
Using a sampling of the cards, we checked per-minute rates to landlines in four international locations. A few of the larger phone card companies, such as AT&T and IDT, had websites where we could look up calling rates. But for many other providers, the only source of information is calling the customer service number or waiting for the "minutes available" announcement when actually dialing the call.
With those methods, we found per-minute costs ranging from two-tenths of a cent to 40 cents for calls to Mexico City; 7 cents to 49 cents for calls to Guatemala City; eight-tenths of a cent to 20 cents for calls to Mumbai; and six-tenths of a cent to 20 cents for calls to Shanghai. Calls to mobile phones in those locations were higher.
We also found a lot of misinformation. For instance, for the $2 Retro-1 card marketed by iBasis we dialed the toll-free customer-service number listed on the card. We were prompted to enter the card's PIN and the international number we were dialing. We entered a landline phone number for Mexico City and the automated prompt said the charge was zero cents a minute. A good deal, we thought, but unlikely.
We punched more numbers to reach live customer service (available only between 10 a.m. and midnight ET). The rep said the rate was actually 2.4 cents a minute. He couldn't explain the response of the automated system. However, when we actually tried to call Mexico City using the card, the automated prompt said that there were 5 hours and 3 minutes available to talk, about 2/3 of a cent a minute. That was much cheaper than what the customer service rep told us.
We also had asked the iBasis rep about the rate to a landline in Guatemala. The rep said 20 cents a minute. We then went back to the automated system and requested the rate for a landline in Guatemala City. The automated system's reply? Eight cents a minute. That turned out to be correct when we tried to call a hotel in Guatemala City.
Even those cards that listed rates could be confusing. For instance, we bought several different IDT PennyTalk cards. Two of them said the rate to India was 5 cents a minute, while another said it was 1.8 cents a minute, which turned out to be the current rate. IDT spokesman Bill Ulrey said that the rate to India had recently been lowered, and that calls with the older cards were being honored at the new, lower rate.
Most of the cards we bought rounded the time used to the next minute. But some cards rounded at higher increments, such as 3 or even the next 5 minutes, which could eat into the available calling time on a card.
A few cards we bought noted that after the initial call, per-minute rates could double.
For people who buy a low-cost card and use all the minutes in one call, fees aren't much of an issue. Only a few cards we bought charged an up-front connection fee that ate immediately into the minutes available for a call. But for those planning on making several shorter calls over an extended period, the numerous fees on many of the phone cards can deplete a card balance quickly.
For instance, some cards had hang-up fees or disconnect fees up to $1 levied after the first call, and maintenance fees of $1 a week beginning the day the card is first used. Other cards listed "surcharges" of 35 percent or more.
The most common fee was an extra charge for initiating the call from a payphone, ranging from 59 cents to $1.35, but mostly around $1.
Many cards also levied a surcharge ranging from 2 to 5 cents a minute on calls using a toll-free number when a local access number was available. Conversely, some cards offered extra minutes if the local access number was used.
At least three of the cards we purchased, DSA/Entrix's $2 Latino and $2 Blue New York and SMT's A+ Nationwide, began charging maintenance fees after we used the card to check calling rates but didn't make a connected call. Within three weeks, the cards had a zero balance. Two other DSA/Entrix cards we used the same way didn't trigger fees right away. A DSA/Entrix customer service representative said we should have complained when the maintenance fees were first imposed. SMT refunded the fees as soon as we called customer service.
Hanif Bhagat, CEO of Smart Telecard Inc. in Harrison, N.Y., a phone card distributor, said card fees allow issuers to recoup costs incurred in introducing cards and offering promotional rates during the launch period. He said consumers benefit if they use the card once for the full amount of minutes. "The bottom line is everyone needs to make money," Bhagat said.
We found the cards easy to use. After dialing the access number provided on the card, we entered a multidigit code and then dialed the international number we were calling. Some of the cards announced the monetary balance on the card prior to placing the call, while all of the cards had an automated announcement of the number of minutes available for the particular call. Some cards had local access numbers to call while others provided a toll-free number.
Most of the cards we tried worked as advertised, connecting our calls quickly. Sound quality was generally good, though some calls seemed clearer than others. All of the cards we tried could be used for calls to all countries, even with the region-specific cards. However, rates were often much higher for countries outside the target region.
We were surprised that some of the fees that we expected didn't materialize. For instance, we didn't expect to get many calls from the $2 Open Phone Card from DollarPhone/DPE, as the card listed a $1.49 fee upon the completion of each connected call and a service fee of 25 cents a minute in addition to the base rate. While we didn't get the full 640 minutes available for the first call, we were able to make eight phone calls to Mexico City, for a total of 36 minutes, before the card balance was exhausted. We thought, all in all, that that was a good deal.
On the other hand, two of the cards that we bought didn't work at all. In one case, the provider of two of the cards we bought, Beeline Long Distance, had gone out of business, according to the representative at the customer-service number listed on the card. He said retailers had been advised not to sell the cards and we were offered a refund. Calls to the issuer weren't answered.
Two other cards apparently weren't activated properly by clerks at the store where we bought them and we were told to go back to the store to have it done properly. In another case, scratching off the coating for required PIN obscured the number itself, although in this case the carrier was able to provide the number to us.
While phone cards can be a worthwhile and inexpensive means of making overseas calls, you have to shop wisely and understand all of the terms and conditions of the card.
Buying $2 and $5 phone cards might seem like a small investment, but if you use them on a regular basis, say weekly, the costs add up to more than $100 a year.
With more money at stake, you want to make sure you are choosing the right card or service. To make your money go further:
If you have problems with a phone card and can't resolve it with the issuer, report problems to the Federal Communications Commission (888-CALL-FCC), Federal Trade Commission (877-FTC-HELP), New York Attorney General Consumer Complaints Office (800-771-7755), or New York State Public Service Commission (800-342-3377). In other states, get in touch with your state attorney general's office.
Our study was funded by a grant from the settlement of an investigation of some phone-card companies by the New York State Office of the Attorney General and other states. The views and statements expressed herein do not necessarily reflect the views and opinions of the Attorney General.