Hidden fees in phone cards

CHOICE uncovers the hidden traps with international prepaid phone cards and what their blaring posters don’t tell you.
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Woman on phone

In brief

  • Don’t just look at the calling rates — check if the card has extra fees and any add-on charges.
  • Shop around, as different vendors sell prepaid phone cards with the same credit value at different prices.

Most people buying a phone card will probably be hooked by the lowest rates advertised on the telcos’ brightly coloured posters, but that’s just half the story. Extra costs, such as “service” fees that gobble up credit even when you’re not making calls, are not printed on the posters or cards.

In the 2007/08 financial year, phone card complaints to the Telecommunications Industry Ombudsman (TIO) about “pricing or other advertised terms being inaccurate, incomplete or out of date” almost doubled from the previous financial year. The Australian Competition & Consumer Commission (ACCC) has taken three phone card companies to court for misleading and deceptive conduct. As a result, new industry guidelines for phone card companies require fees to be clearly displayed in all advertising material — but making fees transparent doesn’t mean you end up paying fewer of them.

Phone cards generally provide great value and convenience for people calling home when they’re overseas, or calling overseas contacts from Australia. You don’t need a fixed, private phone line to make cheap calls, which is especially useful when you’re travelling overseas. Calling rates are significantly lower than those provided by fixed line telcos. When CHOICE compared the range of standard calling rates to the UK provided by AAPT, Telstra and Optus with that offered by prepaid phone cards, we found huge savings — about 30 cents for the first five minutes with a typical phone card, compared with up to $1.30 with the telcos. 

Please note: this information was current as of September 2009 but is still a useful guide to today's market.

How they work

Traditionally, phone calls are charged on a time basis, with a connection between the caller and receiver on a technology known as the Plain Old Telephone System (POTS). Phone card companies offer cheaper rates to consumers by using Voice over Internet Protocol (VoIP) systems instead.

VoIP technology uses the net as the transmission medium, so VoIP calls are charged by the amount of data used, not by time, which costs less. Phone card companies buy huge packets of data from internet service providers (ISP) and distribute them as prepaid phone cards – to online retailers or newsagencies and convenience stores – for sale to consumers.

To make an overseas call, you dial a local phone number, select your preferred language and enter the phone card personal identification number (PIN). This gives you access to the credit you bought to use the data to make the calls using VoIP. After the PIN is entered, you dial the overseas number with the country and area codes.

Devil in the detail

People typically choose a card with the cheapest calling rates for the destination they want. But in reality, it’s the extra fees you should be scrutinising (see What to Look for). Unfortunately, this is easier said than done. The rates and fees are not usually printed on the cards; you have to rely on posters and brochures for pricing. But with at least 20 phone cards available from just one company, it’s simply not feasible for vendors to display all phone card posters. There’s also a risk the vendor will recommend the card that earns them the highest margin, rather than the best-value card for you.

One trap to be aware of is that while several phone cards claim to have no connection fees, they’ll charge service or disconnection fees. All calls on Cardcall’s $10 Ratesaver phone card, for example, incur a $1.20 surcharge every first, 16th and 31st minute of each call, as well as a daily 30c service fee, even if you don’t make calls. The $10 Hello Europe card sold by Tel.Pacific has a disconnection fee of 30c for every call longer than 10 minutes.

Which $10 card?

You may be tempted to buy Lime Telecom’s Ezy2Call $10 phone card to call family in the UK because it offers a standard rate of 25c per minute to call a mobile phone, instead of CallingCard’s Honest $10 phone card, with its 64.5c per minute rate for UK mobiles.

But the conditions for using the Ezy2Call card— which can be found online — reveal a disconnection fee of 15c for each call longer than five minutes. What’s more, each call is “billed with an additional 300 seconds on top of the actual duration”. So, true to its name, the Honest card works out cheaper for calls of less than three minutes, as it carries no extra fees. 



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