Prepaid cell phones cut bills, but come without frills

Jim Erickson of Minnetonka shares a cell phone with his wife, but he found himself without the device recently when she took it on a trip.

"I suddenly saw the advantage of having a limited-use prepaid cell phone for occasions like this," he said.

Many Americans are shunning the one- or two-year cell-phone contracts with $50 to $100 monthly bills and going for pay-as-you-go models. A record 20 percent of cell-phone users are now using prepaid phones, up by nearly 10 percent over 2008, according to New Millennium Research Council, an independent telecommunications think tank.

Part of the reason for the prepaid trend is the economy. People are shedding high-priced monthly bills for something cheaper. Cell-phone users who consistently waste unused minutes every month are finding that prepaid plans waste less and cost less, said John Breyault of the National Consumers League in Washington, D.C.

Last year, the average monthly bill with a contract was about $50, according to CTIA, a wireless industry association. The average prepaid bill was not tracked, but light users can find rates as low as 7 cents per minute.

Early termination fees also add to the frustration that contract users feel. One encounter with a $325 early-termination fee for a smart phone, and you're unlikely to enter into another contract anytime soon. Sens. Amy Klobuchar and Russ Feingold have introduced a bill to require wireless providers to prorate such fees and make customers aware of them at the time of purchase and throughout the duration of the contract.

If you're considering a prepaid iPhone just to avoid such fees, you're looking for something that doesn't exist yet. One drawback of prepaid plans is that the latest, greatest phones such as the iPhone and Droid aren't in the mix. But that's improving.

Prepaid phones in stores and online include basic Web browsing and texting capabilities, but don't expect to be able to download apps, as you can with an iPhone or a Droid. If a Blackberry will do as your smart phone, you can get that from Boost Mobile, for example. But if you're waiting for prepaid iPhones, Breyault said that might happen when other carriers besides AT&T offer them.

Even if you don't need a smart phone, prepaid cell phone choices are limited. Most retailers such as Target or Wal-Mart offer only a few choices per carrier. Online stores have a bigger selection, but don't expect the wide range available with a contract.

On the other hand, many prepaid customers won't be too bothered by the lack of choice. As infrequent users, they don't consider their phone a status symbol.

Choosing a prepaid option

Wal-Mart's new Common Cents plan from Sprint is a good option for light users. It costs only 7 cents a minute to talk and 7 cents per text. The company is making a big deal of the "round down" minutes feature: If you talk 75 seconds, you're billed for only one minute. But because many prepaid users don't rack up the minutes, it's not a significant savings.

Heavy users are usually better off with a contract, but prepaid deals with unlimited usage can be found. ConsumerSearch (www.consumersearch.com) likes the Boost Mobile Monthly Unlimited -- $50 a month for unlimited talk, messaging and data with no hidden fees. But the site cautions that Sprint, which owns Boost Mobile, has a spotty network.

Consumer Reports compared prepaid phones in its January issue. To compare rates on prepaid as well as contract cell phone plans, try www.myrateplan.com, www.prepaidreviews.com/compare or www.consumer search.com/prepaid-wireless.

Erickson wished he had heard of the comparison websites when he purchased a Samsung phone for $25 at a T-Mobile kiosk at Eden Prairie Center.

"I found it very difficult to compare plans," he said.

In that regard, prepaid plans aren't that different from cell-phone contracts.