Sunday, October 30, 2005

Article: Prepaid or contracts?

It's easy to fall in for an advertisement claiming you can get a state of the art phone for $99, or sometimes even free. It feels even better when you go see a dealer and they tell you they can get you a contract for only $20 a month. The surprise usually comes when you get the first bill after a month, and the amount is quite a bit more expensive. Unexpected contract charges is the number one complaint from cell phone users. This is not to say contracts are all evil, in fact most cell phone users in North America are using contracts, although less use them in other parts of the world. We'll see what pitfalls to avoid with contracts and prepaid, and which one is best for which customers.

The way providers work is simple. They get a deal with a phone manufacturer to get a phone branded with their name. Then they sell the phone through their dealers at various prices. They sell it at the full price if you intend to go with prepaid, or they will give you big rebates if you agree to sign a contract, since they know they will make more money from you during the contract time. For example, the Samsung P207 from Rogers Wireless will cost you $339 if you buy the phone without contract. If you agree to a 1 year contract, it will cost $224. $149 on 2 years, and $99 on 3 years. So as you can see the rebate can be big.

When looking at the actual monthly fee, the biggest difference is the included features and the unexpected fees. With prepaid, you go out every month and buy a prepaid card (or call in to add money with a credit card, or online) and the money you spend is what you get as far as airtime. There are no added fees, and there's several features included. For example with Rogers Wireless, you can buy a $10 card and get 30 minutes of airtime, with call display and voice mail included. For a contract, a $20 plan will give you 150 airtime minutes. However to get the voicemail and call display you need to add $10. Plus, contracts add a $6.95 monthly access fee, and $0.50 911 fee. This means the $20 contract will actually costs you $37.45, plus taxes. You still get more airtime for the amount, but you have to be careful about such hidden fees.

The story is the same for all providers. For example on Verizon Wireless, their prepaid service includes voice mail and call display. Their plans also include both, however their lowest individual contracts start at $39. For the phone, they offer the LG VX4650 for $69 on a 2 years contract, and $119 on 1 year. One thing to note is that some providers like Rogers allow you to use any phone they support with prepaid. Others will only sell you a few phones for prepaid.

For data, fees usually change between plans and prepaid. For example on Rogers Wireless, there are data packs that can be added to a contract and provides free data usage including a small download size. You can spend $7 per month for 1 MB of download, with $0.02 per KB after that. On prepaid, it will cost you $0.05 per web page, regardless of the size. So for data usage, prepaid will be a much better choice in this case.

The general rule is that plans will usually be the best choice for people using their phones a lot for voice calls. You can get a large number of airtime minutes for a lower price than if you used prepaid. However, with a plan, you usually need to pay for each additional feature, plus there's often hidden fees. Also if you don't keep track of how much you use your phone, you will end up with a big surprise at the next bill. Remember that if you want to cancel your plan before the term is over, you can be charged $20 per month as a cancelation fee, up to $200. Also most plans will require a credit check.

Prepaid is usually better for low voice usage, for people wanting an emergency phone, or for those who want to keep control of their service. There's often features that you get for free on prepaid, and there is no hidden fee. If you want to pay the least amount per month this is the way to go. However remember you will not get access to the rebates on phones so you will pay the phone full price, and you won't get a lot of airtime for your money. Also note that providers will usually let you switch your prepaid service to a contrat should you wish to, for free or for a little fee. The final advice really, is to investigate fully before deciding anything.


At 12:28 AM, Anonymous EastCoastIsTheBest said...

Ahh Elfguy! You are so right. With my contract I had to deal with hidden fees allllll the time. It was so annoying. But now I have this thing called straight talk where I just pay $45 and get unlimited everything. NO hidden fees! it's so sweet

At 12:15 AM, Anonymous Kevin Welsch said...

So what service did you choose Elfguy? Are you using Straight Talk like EastCoast? I heard they have an international calling service now.

At 12:10 AM, Anonymous NightWalker said...

@Kevin You're right. Straight Talk International Long Distance Service is a flexible prepaid calling service that enables you to make international calls from your home, cell or office phone at low rates. Also it has no contracts and no monthly cost.


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