Monday, October 25, 2010

Questions to Ask When Choosing a Prepaid Phone Card

The US Federal Trade Commission (FTC) issued a Consumer Alert in July, 2010 covering Prepaid Phone Cards. The title of the alert is "When Minutes Matter: Choosing a Pre-paid Phone Card" and it contains some valuable tips for consumers. Some of there are summarized below.

The FTC indicates that "some" calling cards come with hidden fees that will reduce the minutes of talk time purchased. In our opinion, most phone cards come with hidden fees or taxes that will reduce the minutes purchased or increase the advertised rate per-minute to a specific location. Consumers should be aware of this and try to find a phone card with a fee structure that works best for them. A few phone cards have very low fees or, in some cases, no hidden fees but these are relatively rare and usually have higher advertised rates in order to make up for their lack of hidden fees. A couple that come to mind are the AT&T Phone Card and the Tel3Advantage prepaid calling plan. Both of these prepaid products have no hidden fees or taxes but higher advertised rates per-minute. Not all hidden fees are bad, there are other international phone cards with low fees but the fee structure tends to vary between phone cards so consumers should understand how these work so they can find the optimum prepaid phone card for their situation. The FTC advised that consumers should ask the following before making a phone card purchase:

Are fees going to decrease the value of the phone card? Some common fees to look for:
  • Post-Call, Disconnect or hang-up fees: these are charged each time a user hangs up the phone after using the card.
  • Maintenance fees: charges deducted from the value of the card shortly after using the card and at regular intervals thereafter.
  • Pay Phone Surcharges: charges deducted if you use the card at a pay phone.

We would like to add a few common hidden fees that the FTC failed to mention.

  1. Many cards charge a connection fee: This is a charge made each time a call is connected using the card. In our opinion, this is one of the worst hidden charges because the same charge is made for short or long calls and for calls made to a mis-dialed number.
  2. Phone Cards use a rounding interval for billing purposes: This hidden charge is hard for most individuals to understand. Phone cards use a rounding interval for billing purposes. These range from a few seconds to 6 or even 10 minutes. What this means is that the length of the call will be increased to the next rounding interval and the customer will be charged for that many minutes. An example will help explain the process; Assume a person makes a 30 second phone call using 3 phone cards with different rounding intervals. These are cards with 1, 3 and 6 minute rounding intervals for billing purposes. The caller would be billed for a one minute call using the first phone card (rounded to the next 1 minute), a 3 minute call using the second phone card and a 6 minute call using the third card. It is easy to see how this can make a big difference in the cost of a call and is a well disguised hidden fee that even the FTC did not mention.
  3. A long call fee: Some phone cards will charge an extra fee for calls that last over a certain number of minutes.
  4. A user fee: Some cards simply charge a user fee. This is applied like a sales tax that will be charged as a percentage of the charge for the call. These fees typically range between 15 and 30% so they can significantly increase the cost of a call.

We agree with most of the comments made by the FTC in their consumer alert. We especially believe that consumers should look for a phone card merchant that has a toll-free customer service phone number and that consumers should purchase phone cards they are not familiar with in small denominations. We would like to add one more piece of advice. Be especially suspicious of phone cards that advertise extremely low rates relative to the competition. These may offer very poor quality connections or have some well disguised hidden charges, in any case, the old adage even works with phone cards "if it seems too good to be true than it probably is not true".

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