Net Phone Zone: The Hidden Costs of Cheap Phone Service

I am a huge fan of all-you-can-eat buffets. Quite shamelessly, I'll pile up my plate with an embarrassing mound of various foods--talk about heaven. (Hey, I need to know what to grab when I go back to the buffet table for rounds two and three.) Over the years, I've become immune to onlookers' stares.

However, I do get ticked off when I find that I'm being charged for things I wasn't expecting--soft drinks, multiple mugs of coffee, and dessert, for example. It's not that I mind paying for these extras; I just like to know what's included and what isn't.

In the world of Voice over IP phones, you'll face a similar situation. You'll find lots of terrific all-you-can-eat monthly plans, but almost all have hidden extra charges.

Itemized Charges

To avoid annoying surprises on your bill, here are some of the key things you need to consider when shopping for a VoIP service.

All You Can Eat: Find out exactly what is included in the monthly flat fee; you may not be able to eat as much as you thought. And if you go outside the plan's limits, what happens then? Prices and features are all over the map. For example, BroadVoice offers a $10 Unlimited In-State plan in which you can make unlimited calls to numbers in the state your phone's area code is located in; you pay 3.9 per minute for out-of-state calls.

BroadVoice's $20 Unlimited World plan allows you to call landline numbers in 21 countries, including the U.S., Australia, Canada, Chile, Taiwan, and Western European nations. The comparable $20 Unlimited Lingo plan from Primus Telecommunications does not include calls to landline numbers outside of the U.S., Canada, and Western Europe. (See last month's column for a hands-on review of Lingo.) AT&T's $30 CallVantage gives you unlimited calling to U.S. numbers only, and Verizon's $35 VoiceWing plan includes unlimited calling to U.S. and Puerto Rico numbers only.

Hardware: If you sign up with an IP phone company over the Web, you'll receive a telephony adapter, which you connect to your broadband modem or router. Some companies charge you for this hardware; others do not. For example, AT&T, Broadvox, and Vonage provide the hardware for free; VoicePulse charges you $80 for the equipment if you choose the company's $25-per-month America Unlimited plan.

Activation Fees: Rather than having you pay for the hardware, some companies charge a one-time activation fee instead. For example, BroadVoice charges you $40, while AT&T and Primus charge $30.

Shipping Charges: More than likely, you'll have to factor in shipping and handling costs. Vonage ships its hardware to you for free, whereas Broadvox Direct charges $12, and Primus and VoicePulse charge $10.

Extra Features: Avoid paying for premium services you may not need. Some IP phone companies, such as Primus and VoicePulse, set you up with a "virtual" number--a Canadian or international number. That way, friends, relatives, or colleagues overseas can dial a local (for them) number any time they want to call you. Primus, for example, charges $5 a month for a Canadian phone number, and $10 a month for an international number. VoicePulse charges $8 to activate the virtual number service initially; after that, you pay $5.14 per month.

Calls to Cell Phones: The all-you-can-eat plans for international numbers are all very appealing, but these plans do not include calls to mobile phones overseas. For those calls, you'll be charged a per-minute rate. IP phone companies' international rates vary considerably, but expect to pay at least 20 cents a minute--or a lot higher, depending on the country you're calling. Unless you're familiar with cell phone prefixes abroad, it's often hard to tell whether a number is a landline or a cell phone number. IP phone companies usually do a decent job of identifying which is which. See Vonage's list of international rates for a good example.

The Government's Share

Because the Federal Communications Commission views Internet telephony as new technology that needs protection from state taxes in order to flourish, generally speaking, you won't find state taxes tacked onto VoIP phone bills. But you can expect to pay federal fees amounting to a dollar or two per month.

There are exceptions to the state tax issue, however. If you sign up for Vonage's $24.99 plan, for example, every month you'll pay an additional 3 percent federal excise tax, plus a $1.50 regulatory recovery fee, bringing the total to $27.24. This company is located in New Jersey, and it charges subscribers in that state a further 6 percent sales tax; the total bill there would come to $28.78. Vonage says that it is complying with the state governor's requirements, which are unique to New Jersey in this regard. New Jersey-based VoicePulse also charges its in-state subscribers the same sales tax.

Note: The tax situation for VoIP services could change if outgoing FCC Chairman Michael Powell, who has been a big supporter of deregulation, is replaced by someone who wants to level the playing field by regulating VoIP providers the same way traditional land-line companies are regulated.

The Good-Bye Gift

All the broadband phone companies I looked at offer a money-back guarantee, but the ins and outs of each company's policy differ.

Primus and VoicePulse, for instance, offer a full refund if you cancel within 30 days; if you go over 300 minutes of call time (in the case of VoicePulse) or 500 minutes (with Primus), you'll be charged for the overage.

Vonage's money-back period is more limited: You need to cancel within 14 days and not exceed 250 minutes of call time.

In all cases, the refunds do not cover charges for calls made to cell phone numbers overseas, or other international calls not included in your plan, or directory assistance (75 cents a pop in most cases). If you want to cancel your service after the money-back timeframe, you'll be charged a month's service or a specific deactivation fee of at least $30. Oh, and you'll have to pay return shipping for the hardware as well.

Aoife McEvoy has yet to make VoIP calls while sitting down to an all-you-can-eat buffet. (Double heaven.) Drop her a line.
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