Monday, September 13, 2010

Avoid Phone Cards with Connection Fees

Many phone card marketers advertise low rates and make up for them by charging hidden fees. These hidden charges take on many forms. They can be anything from a straight forward tax or service charge on each call or a periodic maintenance fee to a less obvious long call fee or the use of a large rounding interval to calculate the cost for each call. In any case, most phone cards have hidden fees that increase the cost of making calls above the advertised rate.

We feel the most onerous hidden fee is a connection fee. This is a fee that is charged each time a call is connected and it can significantly increase the cost of making calls. Connection fees can be as high as 50 cents or more per call. In many cases these charges are made even if the wrong number is dialed and completed or if the phone is answered and the call is disconnected or the person of of interest is not at home. A connection fee can signficantly increase the cost of making international calls with phone cards. Consider the following example:

Assume a person makes a 20 minute call to Germany from the USA. A typical rate for a premium prepaid phone card rate is 2 or 3 cents per minute. Assume the card offering the 2 cent rate has a 50 cent connection fee while the card with the 3 cent rate has no fee. What is the cost of the same call using each card.

1. The card with no connection fee: 20 minutes x 3 cents/minute = 60 cents

2. The card with a connection fee: 20 min x 2 cents/min + 50 cents = 90 cents

The actual cost using the second card is actually 50% higher even though the advertised rate per minute was 30% lower. 20 minutes is a typical call length. It should be noted that connection fees have more impact on calls with a shorter duration.

This example illustrates the fact that all fees and taxes should be considered when comparing prepaid calling products. Do not assume that the actual rate charged for a call using a phone card will be the listed or advertised rate. This is typically the base rate before adding on hidden fees and taxes. There are only a few prepaid calling products on the market that do not charge hidden fees or taxes. One is the AT&T calling card which is a premium card but has high rates and another is Tel3Advantage. The Tel3Advantage flex plan is a prepaid calling plan that can be used to make cheap international calls from any location in the USA or Canada. It is one of the most popular prepaid calling plans with more than 500,000 active customers.

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