Prepaid cell phones can offer savings

Are you looking to significantly chop down your monthly cell phone bill, but can't find a cheaper monthly plan? Consider a prepaid cell phone.

At least 25 million adult cell phone users are unaware of the savings possible with prepaid cellular, according to a new survey (PDF download) of 1,007 U.S. consumers by Opinion Research Corp. Major carrier, including Verizon, Alltel, AT&T, and T-Mobile, quietly offer prepaid service. So do independents like Virgin Mobile, which operates on the Sprint network, and Tracfone, which uses the AT&T network.

The survey, commissioned by the New Millennium Research Council, a non-partisan Washington, D.C. think tank specializing in telecommunications issues, found that 30 percent of adult cell phone users—some 54 million Americans—make no more than 100 minutes of wireless calls per month. However, only 16 percent, or 29 million adult Americans, have signed up for prepaid. The rest subscribe to traditional monthly contract service.

At low levels of usage, prepaid service tends to cost less, because traditional plans require customers to buy hundreds of unneeded minutes per month for fees starting at $30 to $40. By contrast, a 100-minutes-per-month user could pay as little as $10 to $15 per month using a prepaid plan offered by Alltel or T-Mobile, we found in our report on cell service in the January 2009 issue of Consumer Reports magazine. (Ratings of cell phone providers are available to subscribers only.)

Elsewhere around the world, prepaid is the norm. Prepaid market share is 35 percent in France, 66 percent in the United Kingdom, 76 percent in Hong Kong, and 90 percent in Italy, according to a recent Federal Communications Commission report.

Why so low here? The NMRC says that the major cell carriers bombard U.S. consumers with traditional plan advertising but don't promote their own prepaid plans. In comparison, advertising by smaller, independent prepaid carriers is puny.

The NMRC also says its survey shows that consumers have several important misconceptions about prepaid. Some 51 percent erroneously believe that they are always subject to an early termination fee when they quit their traditional plan, while 59 percent mistakenly assume that prepaid is good only for infrequent users.

In fact, our report found that bigger talkers can score sizable savings, too. An average two-cell family that talks 700 minutes per month could save $100 to $220 a year buying per minute packs from Virgin Mobile vs. big carriers' contract family plans. Even the most loquacious can save $240 per year on Virgin's $80 prepaid unlimited plan compared with unlimited contract plans from the major carriers.—Jeff Blyskal