Going Commando With Your Cell Phone

Virgin Mobile's 'Shuttle' phone, made by UTStarcom. (Virgin Mobile USA)

Some penny-pinching pundits suggest that one way to cut monthly expenses is to dump your cell phone.

But concerns about safety and availability (such as being reachable by potential employers or clients) mean that for most of us, that isn't a practical option.

However, many consumers are finding that there is a way to reduce cell-phone costs: Instead of signing up for a two-year contract, just pay as you go.

"People are more willing to cut the cable — the land line — than they are willing to get rid of their mobile phone," says T-Mobile spokesman Peter Dobrow.

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T-Mobile reported that as the economy spiraled downward in the last quarter of 2008, more than half of its new customers chose a prepaid or no-contract service over a standard contract. And millions more may soon join them.

A March survey of 2,005 adults published by the New Millennium Research Corporation found that 39 percent of respondents with cell-phone contracts planned to change their plans to reduce their bills.

More specifically, the report found that 26 percent of consumers with a traditional contract were contemplating a switch to a prepaid or pay-as-you-go service.

Indeed, there are now a raft of providers offering alternatives to the traditional 2-year lock-in plans that have chained consumers to specific carriers.

There are pay-as-you-go plans from MetroPCS, TracFone, Sprint's Boost Mobile service and Virgin Mobile, for example. Even the major carriers, AT&T and Verizon Wireless, now offer pay-as-you-go plans of their own.

There are several advantages to going without a contract. It lets you change features at any time without a penalty, such as dropping text-messaging service or adding Web access.

Moreover, customers can cancel service altogether or switch to another carrier without any fees or penalties, which should appeal to people worried about job security as well as to those early adopters who want the latest and greatest smartphone, no matter what carrier it's on.

Some new no-contract plans also look hard to resist. In January, Sprint's Boost Mobile began offering a no-contract, $50-a-month plan that includes unlimited voice, text messaging and Web access.

"There are also no roaming charges and no activation fees," says John Votava, Boost's corporate communications manager, who says business has been picking up.

However, Boost is aimed primarily at voice-centric users because it currently doesn't offer 3G data speeds.

"It's not for people looking to download a lot of music and video," notes Votava.

Furthermore, customers may be slow to change carriers and phones.

"We haven't seen a dramatic shift to prepaid" yet, says Ross Rubin, an analyst at the NPD Group research firm.

So what's holding people back from joining pay-as-you-go services?

For one thing, breaking an existing contract isn't easy — or cheap. Most carriers charge $200 or more to get out of a contract, with a sliding scale of lower penalties as you get closer to the end of the contract period.

Furthermore, most prepaid plans don't subsidize the cost of a new phone, which can elicit sticker shock.

The popular Google-supported G1 smartphone is just $179 if you choose a 2-year contract with T-Mobile. If you want to forego the contract, the phone will cost you $399. And AT&T has just begun to offer contract-free Apple iPhones — for a steep $599.

In addition, it's not always clear that a prepaid plan will save you money, thanks to the nearly indecipherable pricing structures offered by the various carriers.

For example, Virgin Mobile charges 5 cents a minute if you choose to prepay $50 a month. Boost has a no-obligation, pay-as-you-go option that costs 10 cents a minute for voice calls.

However, AT&T's Pay As You Go service charges 25 cents a minute. MetroPCS advertises a plan for as little as $30 a month, but it doesn't include long-distance charges, roaming fees or messaging.

Such confusion may make no-contract plans sound more expensive than traditional 2-year plans, but according to a Federal Communications Commission report, the average consumer paid 6 cents a minute in 2007, plus taxes and other charges.

Even that may not represent an accurate picture of cell-phone charges. The Utility Consumers Action Network, a San Diego-based consumer advocacy group, analyzed 134 mobile-phone bills and showed that nearly half of consumers were paying 26 cents a minute or more.

Indeed, comparing cell-phone plans can be more difficult than refinancing a mortgage, so there's a service dedicated to helping you figure it out. FixMyCellBill.com charges consumers $5 to analyze their cell-phone bills and suggests more economical alternatives.

Customers may also be dissuaded to change plans due to inertia. Unlike consumers in Europe and Asia, where people choose a cell phone independently of choosing a cell service, people in the U.S. are used to having cell phones tied to particular carriers, such the exclusive deal AT&T has for the iPhone.

Still, as people look to reduce monthly expenses, technology is marching forward. A new service called Zer01 Mobile will debut sometime this year — the company isn't saying exactly when — and offer a no-contract, unlimited voice-and-data plan for only $70 a month.

Zer01 claims it will be able to undercut other wireless carriers because it will send calls from cellular towers over the Internet (so-called voice over IP or VoIP).

There will be a one-time activation fee of $30, and you'll have to pay full price for a phone — or use your own AT&T compatible model. Nevertheless, it could be a sign of lower prices to come — and a permanent change in consumer habits.

Shopping site PriceGrabber.com just completed a survey of 4,239 online consumers and found that 71 percent of consumers have "implemented savings strategies not only to weather the economy, but also to use once the economy recovers."

If that trend holds true for cell-phone services, it may eventually mean the death of the 2-year contract.