Pay as You Go vs term/contract cell phones

Recently, I decided it was again time to look into getting a cell phone. I’ve had many in the past on contracts/plans, but the fact is that I really never used them all that often. It’s too easy to get into the habit of using it constantly, which can cause overcharges if you go over your montly daytime minutes. That is of course why so many providers do offer “unlimited first 3/6 months of calling” on a contract. If they can get you into the habit of spending a couple hours a day on the phone, it’s going to be tough for you to throttle back your usage when the 3/6 months is over. Many people will either end up going over their allotted minutes, or will end up having to upgrade their plan to one that offers more.

Can’t blame the companies for that… it’s simply good business practice. Kind of like in the drug trade where they pull in new customers with the the “your first hit is free” line of thinking. Well not exactly the same, but you can see the similarities.

Regardless, that’s not my issue with the contract phones. My big issue is with the fees. For example, you can get a phone on a basic $20/month plan, which usually gives you something in the neighborhood of a some daytime minutes and free evenings and weekends. You might think that after taxes, you’re looking at maybe $22-23/month.

Guess again!


Not sure about the rest of the world, but up here in Manitoba (probably all of Canada actually), the bill you actually recieve contains extra fees. First of all, there’s usually a ‘911’ fee. Granted, it’s not a lot (under a dollar usually), but still… wouldn’t you just *assume* that’s all part of the plan? I mean it’s not really what I’d call an “added bonus”. It’s one of those things that should simply be covered in the cost of the plan. Reminds me of buying a car and getting charged extra for floormats. I mean, I just spent thousands of dollars on the car, and you’re charging me *extra* for FLOORMATS?!  Get real.

Next fee which is one of my “favorites” (in that I mean I like the way the companies give the screw job so hard to people and the people just take it) is the “System Access Fee”. Back when I got my first phone, I recall being told about how it’s a “government fee” that the phone companies can’t do anything about. Eventually, people got wise and the media came down on this and exposed the truth. Now everyone knows that the goverment has absolutely nothing to do with this fee. It’s extra pocket money for the companies. By the time this became common knowledge, everyone had already “accepted” that this fee exists which is part of why the companies still get away with it. Right now it’s hovering around $7, although MTS anyway is bumping theirs up to $9. Real nice…. A $20/month plan is now up to over $30/month after tax.

Regardless, you can see why cell plans leave a bad taste in my mouth. If they were just upfront about all the charges and gave you a $30/month plan including whatever made up garbage they want to throw in there, that would be fine with me. The fact that they don’t makes me bitter.

Next… the gouging. Want Caller ID? Be prepared to fork over another $3-5 a month. I’m sure it must cost the cell phone company about that much to provide it to you, right? RIGHT? Don’t worry though, for another TWO dollars you can get a massive package with crap that only 2% of people will use like 3-way calling, and the package also includes Caller ID. Many people get it (although many seldom use it) since after the raping they were dealt with the price of Caller ID, all the extra stuff in the package for only $2 more seems like a great deal. It of course comes at almost no extra expense to the phone company, so it’s just another $2 in their pocket every month on top of the $5 they already took you for.

So looking for a phone, I didn’t want anything to do with these less-than-stellar plans if I could at all help it.

In comes…. Pay As You Go.

There are a few things to say about Pay As You Go for those who’s knowledge stems only from what they’ve seen in commercials:

1) You buy the phone outright. You can get a free phone (or a cheap phone) under a lot of contract plans. With Pay as you Go, you have to buy the phone. The good news is that you often will get a free airtime credit of some sort, so it’s not necessarily quite as expensive as it looks at first. Unfortunately, buying the phone is a pretty big up-front cost in some cases. You can usually get phones for about $50, although they’re quite basic and lacking in features. For a phone you rarely use, that probably won’t bother you. However if you’re looking for something that you can play games and music on, expect to pay about $100-150.

2) There are high per-minute rates, and you must worry about top-ups. Rates usually start at about $0.25/minute with no “free” airtime. This actually gets to be a bit complicated, and is where you’ll find a large variation between providers. Before choosing a pay-as-you-go provider, I suggest you visit *all* of them to see what they offer, because depending on the way you use your phone, your choice in service will differ. I’ll put some examples  below (should be somewhat current as of this writing, but of course is prone to errors):

Virgin Mobile Canada has a flat rate of $0.25/minute. However, for $10/month (a plan), you can “upgrade” to $0.10/minute ALL THE TIME. That $10 itself doesn’t give you any minutes though. It just goes right into their pocket. If you use your phone for 67 minutes or more in a month, you’re better off on the $10/month plan (assuming my math is correct). If you use it for 66 minutes or less, you’re better on the flat rate. To make it more complicated, they have another plan that’s $20/month which will *give* you 200 minutes. However, extra minutes on this plan are $0.30/minute (more than the $10/month plan). So here’s how it all breaks down:
If you use your phone for 66 minutes or less per month, the $0.25/min rate is best. If you use 67-100 minutes per month OR 250+ mins, the best plan is the $10/month for a rate of $0.10/min. If you use your phone for 100-250 mins/month, the best plan is the $20/month for 200 free mins and $0.30/min thereafter.  Confusing, isn’t it… There are more plans, but those are the 3 cheapest.

Rogers AT&T (Canada again) has plans as well, except they don’t have monthly fees. They have “minimum topups” for the plans though, and obviously you should be topping up before the time expires. $10 top-ups are good for 30 days, $20 last 60 days, $30 last 90 days, etc. First, the basic plan is simply $0.33/minute all the time with a minimum $10 top-up. If you recharge with a minimum of $20 top-ups, you can get one of 3 plans: Evenings/Weekends (1 cent per minute between 8pm-8am and all weekend plus $0.39/minute days), the All Day Plan ($0.25/min for the first 5 mins of each day and $0.15/minute for the rest of the day), or their “New” plan ($1.00/day evenings & weekends from 6pm-8am and $0.30/min daytime).

I list those 2 because currently they seem to offer the best Pay As You Go plans. There are other options as well here such as MTS, Telus, and Fido. MTS’s plan seems to be similar to the Rogers plan with some variations (I find MTS’s plans to be slightly worse with higher minimum costs as well). If you’d prefer the CDMA coverage, you might want to take MTS over Rogers though (Rogers has rather poor coverage once you get out of the city limits). Telus has somewhat regular prices, and you can stack on Unlimited “after school” for $10/month (3-5pm),  Evenings and Weekends for $20/month (although their evenings start at 9:00pm and end at 7:00am), or Early Eves/Weekends for $30/month (6pm-9am).

Basically, in general, people tend to go with Pay As You Go for 1 of 2 reasons. Either because they want to spend less, or because they have poor credit. Virgin Mobile Canada and Rogers AT&T seem to be directed towards the former, MTS and Telus towards the latter. Note that 7-11 and Petro Canada apparantly offer prepaid service as well, but I’d imagine you’d probably only go with them if you wanted an emergency-only phone (although they could have other benefits, I haven’t looked into them too terribly well).


3) Freebies, and a lack of surprises. Most Pay As You Go providers offer FREE Caller ID, Voicemail, Call Waiting, 3-Way Calling, Call Forwarding, etc. While some still smack you with a 911 fee, there aren’t the $7-9 System Access Fees. You also never have to worry about receiving a massive bill in the mail for hundreds of dollars (I’m sure you’ve heard of at least someone who hit the dial button by accident and unintentionally made a 2 hour call). You can only lose the amount you have on your phone with Pay As You Go.

Basically, a short comparison breaks down to this:

Pay As You Go:

  • if used wisely, can be much cheaper in the long term
  • great if you don’t spend a lot of time on the phone
  • free call display, etc (usually)
  • no system access fee (that’s $7-9/month saved)
  • no activation fee (some exceptions)
  • if your provider is giving you the screw job, you can leave at any time (just let your minutes run out and don’t top-up. give the phone away to someone else)
  • If you almost never use the phone, you can get away with $10/month + tax (this would typically get you 40 minutes/month through Virgin Mobile).
  • If you use the phone a small amount, you can get away with $20/month + tax (this would typically get you 200 minutes/month through Virgin Mobile on the $20 plan)

Contract Plans:

  • Free phone (or cheap phone)
  • More economical for those who spend a *lot* of time on the phone
  • More “add-on packages” available (unlimited texting, and those sorts of things)
  • Minimum $30/month for a basic plan. ($20/month  + system access fee  + 911 fee).
  • Typically $35-40/month after tax if you add basic features (Call display, voice mail etc)

As you can see, Pay As You Go can save you a lot of money, and carries very little risk since you’re not bound by a contract. The major downsides are the up-front fee for the phone (which takes on average 2-10 months to recover when compared to most contract plans), and the fact that Pay As You Go only really shines when used for infrequent basic phone use.

If you decide to go with Pay As You Go, figure out what your needs are going to be first. Estimate the minutes you’re going to use every month. Decide if you’re going to make most of the calls during the day, or during the evenings and weekends. THEN, visit all the providers and see what it’s going to cost you. They do vary greatly. I myself use Rogers. I tried Virgin, but  realized quickly that the Rogers had a phone and plan that would suit *me* better, so I returned the phone within Virgin’s 10 day return period and switched to Rogers.

The key is to always research, research, research, and then find what’s best for you.