The Checkout

Calling Your Neighbor May Cost You

Reader Ruth Skiles of Falls Church recently noticed that the minutes on her prepaid AT&T calling card began rapidly disappearing even though she hadn't made any out-of-state calls. That had never happened before in the four years since she bought the card at Sam's Club. She was used to reloading it with minutes via telehone and paying the same low rate whether she called inside Virginia or out.

So Ruth called AT&T wanting to know why a call to her neighbor was suddenly depleting many more minutes than a call to a friend in Florida. AT&T's answer is a little convoluted, but we'll do our best to lay it out for you.

The in-state rates on prepaid cards shot up because of a recent Federal Communications Commission ruling that is only starting to affect consumers.

In 2005, the FCC ruled that AT&T had illegally avoided $500 million in government and other fees on prepaid long-distance phone cards. As a result, the agency ordered the company and anyone else that offered similar cards, to pay up, prospectively, that is.

Some portion of the fees in question go toward various purposes, including the Universal Service Fund, which supports phone service in sparely populated areas. AT&T had tried to argue that because prepaid card customers--made up in large measure by service members, seniors and low-income families--had to listen to ads before their calls, they weren't subject to those fees.

Among the fees are access costs on in-state calls. AT&T pays access costs to other carriers that carry the beginning and ending leg of a phone call. For whatever reason, those costs are cheaper for interstate calls than they are for intrastate calls.

Still with me?

After some legal wrangling, the FCC's order was adopted in June 2006. AT&T has just begun notifying customers of the new in-state rates. As of Feb. 1, if you buy a AT&T prepaid card at a store or online, the packaging and the AT&T Web site should lay out the rates, said spokeswoman Amanda Ray.

If you have had the same card for years, you're in a slightly different boat. The thing about prepaid cards is that unlike with cellphones or landlines, they don't generate a monthly statement--or any of stream of mail that might include a printed summary of terms and conditions.

AT&T said it plans to tell existing cardholders about the new rates when they buy new minutes. Somehow, though, no one passed this info onto Ruth, who reloaded her card recently. She had to call and nag a customer service rep to disclose that her new rate amounted to 18 cents per minute. (The new rates will vary by card, depending on where it was purchased and the value of the card, Ray said.)

You can, of course, go online and check out one of the "service guides," for terms and conditions and rate info.
The challenge there is understanding what those guides say.

The prepaid phone card service guide says that as of Jan. 10, a card owner in Virginia would lose "five units" per minute talked when making an in-state call, but only one unit per minute talked during a state-to-state call. You lose three units per minute in Maryland and one unit per minute in D.C.

Ray kindly translated this for us as follows: If I call Ruth from Arlington, Va., and we chat for five minutes on my prepaid AT&T calling card, I will have 25 minutes deducted from the card. But if I call her from Florida and we chat for five minutes, I will lose only five minutes.

Sprint and Verizon (which owns MCI) couldn't tell me if their prepaid cards were similarly affected.

The bottom line is if you have a prepaid calling card, check with your carrier by phone or online to see if the FCC ruling has bumped up your in-state rates. You may want to shop for a better deal.

Ruth says the state-to-state rates still make the card worthwhile for her, but she's probably going to lay off using the card for those local gabfests.

Calling all avid prepaid calling card users: Anyone else noticed a sharp uptick in in-state rates?

AT&T spokeswoman Amanda Ray called in with a clarification. Cards in stores now do NOT have the new rate information yet.

"We do honor the details printed on the back of the cards that are currently in stores now. It's when customers recharge those cards they that they would be notified of the new in-state charges (via an automated/interactive message). If they opt to recharge, they would be charged the new in-state rates after that point."

By Annys Shin |  February 9, 2007; 10:00 AM ET Consumer News
Previous: Top 10 Consumer Gripes of '06 | Next: Looking for a Job? Phishers Are Looking for You.


Please email us to report offensive comments.

The in-state rates are just terrible here, whether it's a prepaid card or not. The best I could find for a non-prepaid card -- after extensive searching-- was 14 cents per minute. That was a few years ago-- now I just use my cell phone.

But the instate rates are a complete ripoff, and I don't know why. When I moved from Manassas to Arlington, the rates got more expensive-- from 9 cents a minute to 14 cents a minute. The explanation was that though they were both Verizon now, one was formerly one baby bell and the other was another. Ridiculous.

Posted by: Virginian | February 9, 2007 10:24 AM

I'm going back to smoke signals and carrier pigeons. Getting ticketed for outdoor burning and enslaving wild animals will surely cost less than dealing with Big Telecom.

Posted by: bigolpoofter | February 9, 2007 10:35 AM

We all have the FCC to thank for this. This is one time where the big phone companies went to battle for the customer and lost to the FCC.

Speech isn't free. It costs "units".

Posted by: Radioactive Sushi | February 9, 2007 10:44 AM

The whole thing is hilarious. Face it, there is no natural cost to a telephone call, which is nothing but more than pushing a few electrons around. The only "cost" is maintenance of the fixed plant and labor, marketing and taxes. So the phone companies engage is every sort of gimmick to goose revenue for the same service. Fiddling with "service fees" on a calling card is merely one way; I seriously doubt the costs are the same as what Ruth is expecting, or originally signed up for, regardless of this latest round is about.

Posted by: Ollabelle | February 9, 2007 10:45 AM

I own a Sam's club calling card. It's usually been a great deal, but I've hardly used it since getting a cell phone. Assuming that Ruth has a good reason for using the calling card instead of a cell phone (not enough daytime minutes?), I would suggest that she look into an internet phone service. I'm pretty sure that Skype, Vonage, etc offer rates much cheaper than 18 cents/minute. There's no reason for anyone with access to the internet or a cell phone to pay that much for long distance.

Posted by: Sam's card owner | February 9, 2007 11:00 AM

I have never used a prepaid phone card. However, from your article and subsequent posts it appears to me that this subject will be working it's way up your Ten Biggest Consummer Complaints list very quickly.

Posted by: SoMD | February 9, 2007 11:08 AM


I hate to say it but this time it wasn't the phone companies. It was the FCC that wanted money. Calling cards were perceived as mobile pay phones. The FCC wants them to be treated like regular phones and impose fees on their use so they are forcing phone companies to comply.

Because long distance calls are generated from a local carrier, switched to a long distance carrier and then switched again to a local carrier, there are fees associated with that process and equipment to maintain. It's not free by any means and it is certainly "more than pushing a few electrons around". Under that thought process, should access to the internet be "free" because of the same process you pointed out? Your devaluing the cost to operate.

Posted by: Radioactive Sushi | February 9, 2007 11:16 AM

RS: Absolutely I'm devaluing the cost to operate because there is no variable cost to the operation. There is no difference in cost from the Telco's perspective whether you're on the phone or not -- they're still pushing current down the wires -- aside from the "fees" you describe. What I'm trying to point out is that these fees are entirely arbitrary and have nothing to do with connecting the call. As Verizon is both a local and interstate carrier, the transfers you describe are also arbitrary and likely an accounting/regulatory fiction only.

As for the internet connection, I'm not proposing that it should free, but only that the only cost is amortization of the equipment to turn it on plus G&A costs. For example, having two prices for different connection speeds (e.g 768k vs 1.5m) is nothing more than creating artificial scarcity because they're using the same equipment to deliver both speeds.

Posted by: Ollabelle | February 9, 2007 12:00 PM

VOIP baby!

Posted by: Mike | February 9, 2007 1:07 PM

Ollabelle - your argument for flat rating access at 768 vs 1536 (for example) would make more sense if you paid demand based rates for traffic volume sent and received, which is very, very unlikely. Although the make and model of equipment is the same, the backhaul from the DSLAM has to be provisioned in a quantity that depends on the peak traffic, and it is not reasonable to think that traffic is the same for a population of 768k vs 1536k users. Over time the aggregation circuits, switches, and routers behind the DSLAMs are a variable cost that depends on aggregate behaviors.
The fact is most people seem to detest usage based billing, and even more so if the billable units are tied back to the cost elements, which are usually something they don't understand (such as what traffic will be unleashed in the network if you click on this particular link as opposed to that one).
I think an economist might also argue that transactions are properly denominated in units of product utility and not units of supplier cost. This is hard, though a competitive market (if you have one) sort of does it.
But if you stick with cost as a basis, there is inevitably a problem of allocating the amortization of shared use capital assets and SG&A. It is a headache and a mess and I think everyone inside and outside the carriers/MSOs thinks that everybody else inside and outside the carriers/MSOs must be cheating them somehow.

Posted by: WW | February 9, 2007 1:13 PM

Call me clueless but, I do not understand why, since she was speaking with her neighbor, she even needed to use a calling card.

Posted by: CM | February 9, 2007 2:11 PM

WW: Ooh boy, I'm afraid we're leaving lots of people behind with this thread, but I still can't agree with your conclusions. I do agree that capital equipment is, at some level, a variable cost as the number of subscribers changes (your "aggregate behavior") but that is more in the nature of a step-increase of fixed costs rather than a true variable cost. In addition, as the demand for equipment that will support the subscribers goes up, so does the base across which those costs are shared.
As for peak demand; sure, the total traffic used by a subscriber would rise some with bandwidth, but it's offset by the lower time in which it takes to download. On a per-subscriber basis would remain essentially static (come on, do you spend more time downloading, or reading what you downloaded?). Demand pricing would be a disaster for the Telco's as it would dramatically drop the bandwidth demand, leaving the amortization of all that equipment to a substantially smaller base, and initiating a death-spiral of cost allocation.
Instead, if Verizon would release the 768k throttle (and as a corollary reduce the price for 1.5m access), they would increase their subscriber base more than they would increase the aggregate load. Their short-term profits would decrease as their 1.5 subscriber revenue dropped, which I think is why they've not done it, but the key point is that their equipment costs and operational costs don't increase because of the next subscriber, only their budgeting for purchases of higher capacity equipment on a long-term basis.

Posted by: Ollabelle | February 9, 2007 2:11 PM

"Call me clueless but, I do not understand why, since she was speaking with her neighbor, she even needed to use a calling card."

I believe the term "neighbor" was implying that the person wasn't across the country but "near by" - but not her next-door-neighbor.

Posted by: To CM | February 9, 2007 2:25 PM

I was beginning to wonder what the deal was, we started using calling cards about 5 years ago and our long distance costs went from $2-3 in monthy "Fees" to just $0.8 per minute and no fees with calling cards. I was wondering when that would get noticed and it got noticed. Before then I told everyone I knew to use cards and not have a calling plan.

Posted by: Bethesdan | February 9, 2007 8:45 PM

I just discovered this when I tried to add minutes to my AT&T card from Sam's Club. I'm sure there are other cards around that are still charging the same rates for in-state and out-of-state calls, but I went with Their FAQ page specifically says the prices are the same (2.5 or 2.9 cents per minute, depending on if they have a local access number in your area).

BTW, we have a Virgin Mobile phone which costs us 25 cents a minute, and the reception isn't great inside the house. So using a cell phone for toll calls isn't a great alternative for us.

Posted by: EC in NJ | February 10, 2007 2:11 PM

We've used the Sam's AT&T prepaid phone card for years. Cell phone service doesn't work here, too far from towers, so that's not an option. The only broadband internet available is Satellite at $50 per month, and Vonage etc are not useable due to the annoying lag. So I guess there is no option but the landline at regular rates, guess we're going to have to stop using the phone.

Posted by: rancher | February 21, 2007 11:44 AM

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