Lowering Your Phone Bill Takes Some Talking

Nobody likes receiving bills, but you're in good company if you regard the one from your phone company with particular loathing.

Since the beginning of the year, the three major carriers -- AT&T(T - Cramer's Take - Stockpickr), MCI WorldCom(MCIT - Cramer's Take - Stockpickr) and Sprint(FON - Cramer's Take - Stockpickr) -- have increased rates on their long-distance calling plans. On top of that, for the last few years, phone companies have been hiking fees, also boosting the price of long distance service.

The bottom line: Six years after the passage of a landmark law intending to make phone service cheaper -- the Telecommunications Act of 1996 -- consumers are more bewildered than ever by their phone bills. Many of them don't look much like bargains. Indeed, unwary customers could pay more than necessary.

"Essentially, carriers have realized there is a sucker dynamic," says Scott Cleland, CEO of the Precursor Group, an independent research firm. "They can charge pretty much what they want for certain customers and they'll pay it."

Fee-Gouging on the Rise

To be sure, some long-distance consumers have made out better than others amid the recent changes. Subscribers who make many hours of long-distance calls each month stand to have benefited. Though carriers have jacked up rates for some plans, rates overall actually have fallen since the telecom act went into effect.

According to the Federal Communications Commission, between 1996 and 1999 the cost of long-distance calling dropped from 16 cents per minute to 14 cents per minute (if adjusted for inflation, the reduction would appear even bigger). If you spend a lot of hours on the phone each month, that trend is likely to have decreased your bill.

But don't assume you're getting a bargain just because you pay only six or seven cents a minute for long-distance calls. You may be charged for all kinds of hidden service fees.

In an online explanatory guide, the FCC lists at least eight charges that may show up on your monthly phone bill.

One of them, the universal service fee, recently has stirred controversy. Carriers are supposed to pass on 6.9% of their revenues to subsidize service for rural and low-income subscribers. But starting in January, AT&T customers have been slapped with a fee equal to 11.5% of their monthly bill (up from 9.9%).

In response, Rep. John Dingell, D.-Mich., asked the FCC to investigate and accused AT&T of "padding its pockets" by hiking the universal service fee so high.

Another example of fee-gouging: Sprint customers must pay a monthly fee on their phone bills for the carrier's property taxes. And sometimes, long-distance companies tack on a charge (usually $1.50 a month) if you want to be billed through a local phone company.

All these fees add up, even for people who make relatively few calls. Customers have to pay the monthly fees regardless of how much they use their phones. To get a sense of how much costs have jumped for these subscribers, TRAC estimated the phone bill for a hypothetical caller who made only 53 minutes of long-distance calls a month. In December 1998, the caller's bill would have totaled $9.42 using the AT&T Dial One Standard plan. Three years later, as of January 2002, the bill had spiked to $16.48.

Tips on Picking a Plan

In short, if you're shopping around for a phone service plan, you'll want to compare not just per-minute rates, but also any fees the phone company charges. Though the per-minute rates of your plan may sound cheap, often the fees increase a total bill to quite a bit more than the quoted rate.

Say you have a 7-cents-a-minute calling plan. Sounds like a good deal -- but what if you place only 30 minutes of long-distance calls a month? As Consumers Union points out, when you add in typical fees, you'll pay more than you expect. Assume a $3.95 monthly service fee, an in-state fee of $1.95, and a universal service fee of 11% of the monthly charges, and you'll be stuck with a tab of $8.92. That actually amounts to 29 cents a minute.

And be wary of unlimited service plans. "Right now, we're seeing all-you-can-eat plans that let you make as many long-distance calls as you want for $19.95 a month," says Matt Coffin, CEO of Lowermybills.com. But many consumers don't spend that much, he says. "In general, you can get better rates by the minute that will save you more money. You don't need to commit to such large chunks of long-distance service."

When you're shopping for the best per-minute rates, think about when you make the most calls -- whether it's on weekdays or weekends, during the day or night. Be certain an advertised rate will be in effect during those times. Also make sure that the rate applies both to in-state and out-of-state calls, if you are likely to make both.

Steer clear of plans that bill you in 60-second increments. Under these plans, if you end a call after two-and-a-half minutes, the cost will be rounded up and you'll be charged for three minutes. You'll save money by opting instead for a plan that bills in six-second increments, a common and consumer-friendly option.

See if a plan bills any minimum charges per call. As the FCC points out, if every call has a minimum of 50 cents, even a two-minute call can cost you 50 cents. With "up-to-20-minutes-for-a-dollar" plans, leaving a 15-second message on someone's answering machine will cost you a dollar.

Also, be wary of rates that spike up after a certain amount of time. If an ad says that calls up to 20 minutes cost a dollar, find out what the 21st minute costs. The per-minute rate may skyrocket after 20 minutes.

All that said, of course, you may not be too enthusiastic about spending time shopping for phone plans. That's understandable. But think of it this way: It's better than letting a long-distance carrier profit from your inertia.