Honey, I Shrunk the Phone Bill

As long-distance rates rise, simple steps can yield savings

For the past decade or so, you never had to worry about getting dinged on your home phone bill. State regulatory agencies kept the price of local calls in check. Long-distance carriers kept bribing you to switch with $100 checks and frequent-flier miles -- and ever-lower per-minute prices.

No more. With per-minute rates at rock-bottom lows, long-distance companies are losing money. So they've started rolling out price increases. Some are straightforward per-minute hikes, such as the Jan. 1 rise from MCI (MCWEQ ) that took many plans from 5 cents to 9 cents. Many, though, sneak through as higher recurring charges: Your $5 a month plan goes to $7, your $3 minimum goes to $5.

With prices on the way up, it's more important than ever to study your phone bill. If you've never shopped carefully before, you can probably cut your bill by more than half if you're on a plan from AT&T (T ) MCI, or Sprint (FON ).

Start with your local bill. Maybe you don't need that extra line -- your teenagers are off to college or prefer talking on their cell phones. Or perhaps you've replaced that dial-up Internet connection that needed its own line with a high-speed cable modem or DSL. You can get rid of that dedicated line for your fax machine by subscribing to a free Internet fax service, such as eFax or K7 Unified Messaging. They turn incoming faxes into e-mail attachments.


But the real savings can be had on your long-distance bill. Figure out your calling patterns. Are most of your toll calls in-state or out? Do you phone more on evenings, weekends, or during the day? If you make a lot of calls -- around 1,000 domestic minutes a month, experts say -- you may want to consider one of the new unlimited calling plans that combine local and long-distance service. Otherwise, tally up the calls you make and plug them into one of the long-distance calculators you can find on the Internet.

In fact, plug them into several before you make a decision. The dirty little secret is that, of the thousands of Internet sites that purport to help you lower your phone costs, most receive commissions when you sign up for new service. If a plan's commissions are too low, some sites won't list that plan.

The most sophisticated is TeleBright.com, the only one that factors in international calls for up to three countries. But check the recommended plans carefully: The prices TeleBright quotes can be out of date. It also missed a recent long-distance billing twist entirely: Overseas calls to cell phones usually command substantially higher per-minute prices.

As a check, and especially if your calls are all within the U.S., other good sites for comparing prices are ABTolls.com and 1010PhoneRates.com. The latter specializes in so-called dial-around services, where you have to dial 10-10 plus a three-digit code to make calls from your home phone. Be sure to check the rate for in-state toll calls: The typical household makes more calls in-state than out, and they're almost always more expensive than the more widely advertised interstate rates.

Be prepared to give up your current long-distance provider for a no-name brand. "If you're using AT&T, MCI, or Sprint, your rates are too high," says Marc-David Seidel, a business professor at the University of British Columbia who started ABTolls.com as a hobby. Unlike the Big Three, these no-name brands -- such as Capsule Communications (CVSTE ), AireSpring Long Distance, and Enhanced Communications Group -- don't own their own networks. They buy and resell the big carriers' excess long-distance capacity at hefty discounts. Their state-to-state rates are in the 3 cents-to-5 cents range, and they usually don't charge monthly fees or minimums.

Another tip: Use your cell phone for long-distance calls. But be sure to check your wireless contract to make sure you know what you're paying for. On some inexpensive plans, long-distance isn't free, or it isn't free for calls you make when you're outside your home calling area. There are other issues, too: You can't use a cell phone if more than one person wants to be in on the call.


Ready to punch in a lot of numbers? You can save with prepaid phone cards that require you to dial a toll-free number followed by a PIN and the number you're trying to reach. But because of such scams as expensive connection fees, short expiration times, and the high number of companies that go out of business, choose the brand and retailer carefully. A good bet: Sam's Club sells a range of AT&T prepaid cards starting at $20.82 for 600 minutes. That's 3.47 cents a minute, taxes and fees included.

A couple of dollars a month saved here, a couple of cents a minute there. It may not seem like much. The phone companies are counting on you to think that way. But by the end of the year, it could add up to several hundred dollars -- enough to buy that cool new cell phone you've been eyeing. Then you can start sweating over how those expiring minutes and two-year contracts figure into your true calling costs.

By Larry Armstrong

    Before it's here, it's on the Bloomberg Terminal.