Cell-phone Users Warned to Watch out for Fees, Penalties

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One way that consumers can cut back on spending during the economic crisis is to keep a closer eye on cell-phone rip offs, a consumer group said on Thursday.

In 2009, "recession plagued consumers who are saddled with expensive contract-based cell-phone service," won't get much relief and may in fact get burned by fees and penalties, said Ken McEldowney, executive director of Consumer Action during a conference call to discuss the group's warnings.

Consumer Action identified five ways that consumers often inadvertently spend too much money on cell-phone service.

The first is related to early termination fees. While all of the operators in the U.S. have changed their policies to ease those fees, often after facing legal challenges, they still cause problems for many people, said Sol Carbonell, an associate with Consumer Action. The operators now prorate the fee, so as users get closer to the end of the contract, they are asked to pay less to break the contract. "The truth is, most prorating plans provide very little relief in the first year of the contract," she said. "Many consumers will still face the full or nearly full penalty."

Last year, Sprint was ordered to pay US$73 million after losing a class-action lawsuit about its early termination practices and has since been hit with another lawsuit looking for an additional $1.2 billion related to the practice.

Users may also be disappointed to find that when they buy a new phone, perhaps because an old one was lost or stolen, operators typically require them to start a new contract, Consumer Action said.

Other fees may surprise users. For example, most operators charge $.40 to $.45 per minute for calls that surpass a user's monthly allotment for a postpaid plan.

In addition, as the use of text messaging grows, so has the price. Many people pay more than $.20 per message, up from $.10 in 2005, said Carbonell. Those prices have caught the eye of legislators including Senator Herb Kohl from Wisconsin, who recently sent letters to wireless operators asking why their text messaging prices have gone up when the cost to deliver the messages hasn't increased for them.

Consumer Action often hears about problems that people have with cell phones. "We have a complaint switchboard and cell phones continue to be a really high proportion of the calls we get, when consumers don't end up knowing what they're getting in for and are mislead in terms of signing up for services," McEldowney said.

Prepaid services could remove the risk of being hit with some of these surprising charges because prepaid users don't have contracts and don't get charged for surpassing a monthly allotment, Consumer Action said. However, in the U.S. most prepaid plans cost more per minute for use and so may not make sense for many users.

The CTIA, an association representing mobile operators, did not immediately reply to a request for comment on Consumer Action's report.

Consumer Action thanked TracPhone, a prepaid mobile phone provider, for its help in making the news conference possible. The group works in partnership with many organizations and companies and maintains editorial control over everything it does, McEldowney said. Other companies listed on Consumer Action's Web site as donors include Verizon, AT&T and Microsoft.

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