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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01 .Introduction

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Telecommunications Industry Ombudsman (TIO) about “pricing or other advertised terms being inaccurate, incomplete or out of date” almost doubled from the previous financial year.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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Ask your phonecard vendor for a brochure outlining fees and charges You can also check and compare rates and fees on the card company’s website or visit the websites of the various online card distributors. Here are some things to look out for:

  • Local access numbers versus 1300 and 1800 numbers Make sure the phone cards have local access numbers so you do not have to make interstate calls, or worse, use the 1300 or 1800 numbers that incur a phone card surcharge of up to 20c per minute.
  • Incremental billing Some phone cards round off each call to the nearest five minutes, even if you only speak for two. It may also bill additional time on top of your call duration, diminishing credits you never actually used.
  • Connection/disconnection fees Although a card may claim to have no connection fee, it may load a “surcharge” after the call is connected or charge a disconnection fee.
  • Service/account fees that are charged on some cards begin from the day you activate the card — you may be charged even when you’re not using the card to
    make calls.
  • Fixed line versus mobile line calling rates The calling rates advertised may not reflect higher rates for calling an overseas mobile phone.
  • Peak and off-peak time Similarly, the advertisements may only show you the rate for making calls during off-peak times, such as between 2am and 6am.
  • Expiry dates Most cards have an expiry date between three and six months from first use.

Avoid extra charges

To avoid buying a shonky prepaid phone card, ask your vendor for the latest phone card brochures and carefully check that the calling rates, extra fees and terms and conditions are current. Shop around online or at a few vendors, as they may offer discounts for the cards. A prepaid phone card with a $50 value may be sold for $38.50 online by a phone card distributor, or $40 by one vendor and $50 by another.

03.New Industry Guidelines for Prepaid Calling Cards

 

The TIO received 906 complaints in the year to June 2008 for misleading and out-of-date calling rates advertised by phone card companies, compared with 561 the previous year. In March, the ACCC took Tel.Pacific to court for breaching the Trade Practices Act by advertising that a total number of minutes were available on its prepaid phone cards, when in fact the time could not be achieved because of undisclosed fees and charges. The ACCC said the advertised minutes on one of Tel.Pacific’s cards were only available if one continuous call longer than 33 hours was made, which was “neither practical nor realistic”.

Tel.Pacific was ordered to display clearly and accurately all fees in its future advertising. An ACCC spokesman told CHOICE: “The court action initiated by the ACCC against a phone card company was the first of its kind, sending out a clear message that such practices at the detriment of consumers are not tolerated.”

In May, Tel.Pacific’s biggest competitor, Cardcall, was similarly taken to task for misleading ads on its Talk Tomato, Daybreak, OZcall and It’s Green phone cards. The Federal Court ordered the company to withdraw the offending ads and post a general guide to extra fees for phone cards on its website, as well as at its distributors’ retail outlets. In July, the ACCC took similar court action against Prepaid Services, Optus’ prepaid phone card subsidiary.

The problem is not unique to Australia. Phone card companies in the US have been penalised between $US1.3m and $US2.25m for engaging in false and deceptive advertising of the total minutes available on phone cards, as well as for not prominently disclosing extra charges.

New Industry guidelines — the solution?

In August, the new Industry Guidelines for Prepaid Calling Cards were released by the Communications Alliance — the peak body for the Australian communications industry —stipulating that phone card companies must not advertise a total number of minutes as being available if those minutes can only be realised in one phone call. All extra fees must also be detailed in brochures and posters, in readily readable colours and font. However, this move to greater transparency, while welcome, doesn’t necessarily give consumers a better deal.

For a start, not all posters can realistically be displayed for consumer reference. Cardcall’s chief executive officer, Steve Picton, told CHOICE: “I think the problem is when phone card companies add lots and lots of terms and conditions, which can be confusing for the consumer.”

CHOICE calls on all prepaid phone card companies to abolish confusing and misleading add-on fees and compete directly on the charge per minute offered by each card.

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