What do you pay to stay connected?

So many choices! Here's our total telecom strategy guide
November 24, 2003: 10:11 AM EST
By Cybele Weisser with additional reporting by Farnoosh Torabi (Money Magazine)

NEW YORK (Money Magazine) - Industry changes have forced phone carriers to wage cutthroat battles for your phone business.

Wireless number portability -- launched Monday -- has cell-phone providers running scared. Cell phones are outselling landlines, which has local-service providers in a panic.

And there's the looming threat of Internet phones, which let you make calls cheaper through high-speed modems.

"Right now the carriers are on a rampage to lock in as many customers as possible," says Allan Keiter of the rate-tracking website MyRatePlan.com. They've even rolled out a plethora of new deals to draw you in -- from bundled plans that provide your local, long-distance, wireless and Internet services for one flat rate, to rebates on the latest phone hardware and devices.

But with all the options out there, it's impossible to figure out if you're getting the best deal.

"The complexity of the industry is the enemy of smart shopping," warns Sam Simon, president of the Telecommunications Research and Action Center (TRAC), a consumer advocacy group.

In this story we'll help you sort through the confusion and determine what you really need -- and how much you should pay for it.

We've outlined strategies for three types of callers: single and on the go, a household of just two, or an even busier household with three (or more) talkers.

One last thing before we get started: fees. You sign up for a flat-rate plan, but when your bill arrives, it's significantly higher.

The reason: Though stiff competition has forced carriers to cut their prices, they've made up for it by raising supplementary charges -- and often they have complete discretion to charge you whatever they like.

Everything from directory assistance to regulatory fees, which include interstate access charges, taxes and number portability, gets thrown onto your bill. All together, this can increase your monthly costs by as much as 25 percent, according to TRAC. The prices that carriers advertise -- and that we mention in the story -- don't include fees. Bear that in mind as you read on.

Single and mobile

Are you always on your cell phone? According to the telecom consultancy Yankee Group, 5 percent of all wireless users have made their cell phone their primary phone. Here's our advice on mobile plans.

Ask your current carrier for a better deal. "Now's the time to call your carrier and say, 'I'm thinking of leaving. What can you offer me?'" says TRAC's Simon.

According to Yankee Group estimates, nearly 8 percent of the nation's 148 million cell-phone subscribers will switch carriers within a year when number portability takes effect Nov. 24. But since cellular carriers must spend about $320 to acquire a new customer, most will be eager to make a deal with you.

Some have even started to offer their best customers (those who spend upwards of $80 a month) extra minutes or rebates on new phones if they stay put. Just beware of multiyear contracts. You don't want to be locked into a two- or three-year contract if rates suddenly drop.

If your current carrier won't make a deal, shop for topnotch service first, then a deal. If your cell phone is the main way that people can reach you, "find the carrier that provides the best coverage in your area," says Joe Bradshaw of WirelessAdvisor.com.

Each carrier's service quality varies by region, depending on how many cell-reception towers it has in the area. But those coverage maps the carriers show you are notoriously unreliable. So talk to people instead -- friends, family and co-workers who live and travel in the same areas that you do.

Ask them about their reception quality at different times of the day and in different locations with various carriers -- "right down to the highway you use to commute to work," says Bradshaw. That should narrow the field to one or two choices.

When you sign with a new carrier, make sure it offers at least a two-week return policy. This will give you enough time to test the service. If you find that reception is poor, you can cancel without having to pay a termination fee, which can easily top $200.

You should pad the allotted minutes in your plan too. Get no less than 500 minutes, because phone overtime can be costly: 35 cents to 45 cents a minute, depending on the provider. You may need to call your carrier and readjust your plan -- by more minutes or less -- after you get your first bill. Just be aware that in most cases, they will restart your contract any time you make an adjustment.

Small households

If you live with someone else, chances are you'll want a landline or at least a common number where you both can be reached.

Add up your bills before you sign up for a bundled plan. For many households of two, bundled plans won't save, well, a bundle. In fact, they could cost more than unbundled services.

How do you figure out if a bundled plan is a good deal for you? Simply add up your local and long-distance bills to see what you currently pay. If the bundle saves you $20 a month or more, it's a good deal.

IDT now offers unlimited local and long-distance service for $40 a month in Maryland, New Jersey, New York and Pennsylvania -- come December there will be another eight states, and the company plans to offer nationwide service within a year. Otherwise, go with MCI's Neighborhood Complete plan for $50 a month, which is available in 48 states.

But if you're on the edge -- you spend, say, $65 for local and long-distance service and the bundled plan costs $58 -- you should try other strategies, which we also discuss, to cut down on your long-distance and local bills before signing up for a bundled plan.

If a bundled plan doesn't save you money, try trimming your local and long-distance bills.

Local service: When it comes to local service, you have an option as to how big a footprint you want to include: just the city of Chicago or the city and its suburbs as well? Limiting your scope can trim your basic local-service costs significantly. SBC, for instance, offers a $15 monthly plan that covers the immediate Dallas area, compared with $33 for its regional-area service that stretches 60-some miles past the city proper to bedroom communities.

Or ditch the phone carriers altogether, and sign up for an Internet phone from Vonage.

Long-distance service - your bills are under $20: Consider getting rid of your long-distance plan entirely and using your cell phone instead. Just make sure your cell plan has the minutes to cover your long-distance calls. Otherwise, buy a prepaid card. Stick with a known provider; some AT&T cards cost as little as 3.5 cents a minute. Most cards are only good for a few months. Or use the 10-10 numbers. MCI TelecomUSA service (10-10-987) is one of the cheapest: 3 cents a minute plus 39 cents for each call.

One caveat: If you dump your long-distance plan, notify your local provider as well to cancel its default long-distance service. Otherwise, if you make a long-distance call from your home phone, you'll be charged an exorbitant rate by the local carrier's default long-distance plan. Verizon's default rate, for example, costs a hefty 28 cents a minute on weekdays -- seven times the going discount rate -- and 18 cents during evenings and weekends.

Long-distance service -- your bills are over $20: Your best strategy depends on your calling patterns. If your calls tend to last more than a half-hour each -- but are infrequent -- the 10-10 numbers are still your cheapest bet.

On the other hand, if you make a number of long-distance calls that last no more than five or 10 minutes each, the per-call charges on the 10-10 plans (39 cents to 99 cents) may add up to more than you'd spend on a flat-rate plan.

You're better off with an unlimited flat-rate plan. For instance, a consumer who makes 30 long-distance calls a month and talks for 200 minutes would spend $17.70 using 10-10-987 service but just $15.95 with Sprint's Nickel Nights plan (assuming he makes all of his calls after 7 p.m.).

Finding the best flat-rate plan depends on when you make the most long-distance calls (days, evenings or weekends). Websites like ABTolls.com and MyRatePlan.com will point you toward the cheapest plan in your area that fits your pattern of phone use.

The sites may steer you to lesser-known companies, like ECG Long Distance and CogniState, which have no monthly fees and charge around 3.5 cents a minute -- half as much as established providers. But smaller companies may not offer the same level of service and support as the majors. A billing issue, for instance, may take longer to resolve.

Multiple users in a household

Even with two teenagers, you don't need more than one landline at home, says TRAC's Simon. "Teens nowadays use instant message, e-mail and wireless."

Sign up for a bundled local and long-distance plan. For families with lots of talkers, tying all your services to one provider can be cost-effective. MCI's Neighborhood Complete offers unlimited local and long distance for $50 a month. Throw in DSL for $35, and your bill every month is $85.

Go for a wireless family plan. These plans -- you share minutes with one or more users and pay a fixed monthly fee -- are a good solution for families with teenagers. Your family gets consolidated monthly bills, so you can keep an eye on how often they're jabbering away. And if you're mostly calling one another, many carriers offer plenty of free mobile-to-mobile minutes.

AT&T's Family Plan costs $75 a month for the first phone and $10 for each additional one; you get 1,200 minutes, free nights and weekends and 1,000 mobile-to-mobile minutes. (This plan requires signing a two-year contract.) Just remember to monitor minutes; overtime charges will soon eat up any savings.

If your yak-happy teenager habitually runs over, consider a pay-as-you-go plan (no contract, no cancellation fee).

AT&T's GoPhone plan comes with 150 minutes, free nights and weekends, e-mail and instant messaging for $34 a month. You can set it up so when your teen hits 150 minutes, she can't make another call until you make another payment.

Finally, if your kids are text-messaging fans, get a service that charges a flat rate for messages, like T-Mobile: 1,000 messages for $7 a month. Some providers charge as much as 10 per message, which can add up quickly. Now if only we could tell you how to get your kid to focus on school more than his cell.

The new new (phone) thing: a Web connection

Who needs a phone line these days? You can save 50 percent and get unlimited calling through the Internet. The latest gee-whiz trend in phones is called Internet telephony, and it comes to consumers primarily through Vonage.

How it works First, you need a high-speed Internet connection (DSL or cable will do). When you sign up, Vonage sends you a black box roughly the size and weight of four CDs. You plug it into both your broadband connection and a regular touch-tone phone

The box converts the sound of your voice into digital packets, which are transmitted over the Web, but you make and receive calls on the phone that's hooked to your Vonage box. Cool, huh? It is -- and it can mean sizable savings.

What it costs For $25 you get unlimited local and 500 minutes of long distance in the U.S. and Canada; for $35 you get unlimited local and long-distance service. Major extra features (voicemail, caller ID, call forwarding and voice messages via e-mail) are free with both plans.

Plus, for $20 a month you can get a second number in another area code routed to you at home -- so your kid at college can reach you with a local call.

The caveats You can get Vonage service anywhere you can get broadband. But you may not get a number with your local area code if the company doesn't own area codes where you live (it now has 170 area codes in 35 states). So, for instance, a Nebraska resident may have to settle for a 617 (Boston) area code -- fine for your kid at Harvard -- but your next-door neighbor will have to make a long-distance call to reach you. Also, you must feel comfortable relying on a new technology.

If you decide to sign up, ask for bandwidth compression, which squeezes data into even smaller digital packages. It's free, and it helps to maintain the speed of your connection even when your Web link slows. (If your Internet service goes down altogether, you can call-forward to a cell-phone number.)

What about 911? You won't automatically get 911 service through a Vonage phone, since those calls are normally routed via the landline in your home to the nearest 911 service center. But you can set it up so Vonage automatically forwards your 911 calls for you.