Fashion brand

Dollar Scholar Asks: How Do Cheap Cell Phone Plans Work?

This is an excerpt from Dollar Scholar, the Money newsletter where editor Julia Glum teaches you the modern money lessons you MUST know. Don’t miss the next issue! Register on money.com/subscribe and join our community of over 160,000 scholars.


Let me tell you the tragic story of my first cell phone.

I was in ninth grade and my phone was a blue Sony Ericsson that my mother gave me only for emergencies. I wasn’t allowed to give the number to friends and couldn’t text on it, but I treasured it all the same…until one day at lunch I slipped it into a pocket of my backpack next to a Capri Sun I intended to drink later.

(Do you see where this leads?)

A few hours later, I opened my bag to find that the Capri Sun had been punctured, leaving a pool of juice in which my precious phone was floating, dead. He had drowned.

Even as a teenager who didn’t pay her own bills, I was aware of the high costs of owning a cell phone. Now that I’m older and writing about money for a living, I’m hyper-aware. So I got curious recently when I heard about other cell phone providers like Visible and Mint Mobile offering lower prices.

How do cheap mobile plans work?

I hopped on Google Meet with Jeremy Bolton of Visible to get a feel for the terrain. (Mint Mobile, owned by Ryan Reynolds, is probably the most well-known player in this space, but it wouldn’t return my emails.)

Bolton explained that as an industry, wireless services are dominated by the “big three” carriers: AT&T, Verizon and T-Mobile. Companies like Mint Mobile are what are known as Mobile Virtual Network Operators, or MVNOs. MVNOs lease access to the Big Three’s networks and offer packages that customers like me can purchase.

Visible uses the Verizon network. Mint Mobile and Google Fi primarily use T-Mobile, although Google Fi also uses US Cellular.

Because they don’t have to pay for the same infrastructure as the Big Three, these providers are able to offer cheaper plans. Visible, which calls itself not an MVNO but an “all-digital wireless carrier”, is 100% online. Bolton says there’s a huge benefit to not having to, say, keep the lights on in a bunch of mall stores.

“When you operate exclusively digitally, you can have a more efficient business model and you pass those savings on to your customer,” he says.

Let’s run the numbers. A line on AT&T’s Unlimited Starter Plan costs $65 per month. Visible’s plan, which includes unlimited calls, texts and data, costs $40 (or less).

“There are no decisions to make. We have one plan, and it’s all included, so you don’t have to worry about minutes or monitoring your usage or anything like that,” says Bolton , adding that taxes and fees are included.

MVNO offers are often prepaid, which means that I to pay the bill in advance at the beginning of the month instead of being billed at the end. Bolton compared it to Spotify or Netflix, where “you pay, then you can use their services for 30 days, and at the end of those 30 days you can say, ‘Do I want to do this again?'” . a subscription service than a traditional telephone contract.

This structure means I get what I pay for — I won’t encounter costly overage fees, says Eden Iscil, public policy associate at the National Consumers League. It also means there is flexibility to switch between plans depending on my needs.

Iscil says that in many ways these services are super modern.

Visible has a feature called Party Pay, for example, which works like a family plan to offer discounts but does not require me to be linked to other users. Visible does not limit the number of people who can join a party. In fact, there is a Reddit-based party with over 10,000 members, none of whom are responsible for the other’s bills.

MVNOs are also generally compatible with different types of phones. As long as my device is unlocked, i.e. not tied to a carrier, all I have to do is get a SIM card (or eSIM card). MVNOs also sell phones themselves with traditional installment payment plans and/or buy now, pay later like Affirm.

What’s the catch? Well, because of the way they’re structured, “their service is at the discretion of the Big Three,” Iscil explains. “A lot of times if you have a plan through an MVNO, you might be deprioritized if they experience high traffic.”

Being deprioritized = getting slower data speeds.

For this reason, MVNOs may not be suitable for people in rural areas who do not have reliable Wi-Fi coverage or broadband access. It could get very frustrating very quickly if I rely on a hotspot for work or school and have an MVNO that deprioritizes me during times of congestion, slowing my speeds and preventing me from completing my tasks.

The bottom line

Alternative phone providers operate by leasing network capacity from large companies – typically the big three from AT&T, Verizon and T-Mobile. This usually means cheaper prices and flexible plans. But I have to be internet savvy and ready to do business digitally…there isn’t, for example, a phone store where I can stop on my way home from work if my iPhone suddenly fails.

Perhaps the most serious downside is deprioritization. Since these small businesses essentially borrow the infrastructure of larger enterprises, they are the first to go when networks are overwhelmed with traffic. I can to save moneybut sometimes I have slower data.

Iscil recommends reading the fine print before signing up for an MVNO.

“It’s definitely genuine – it’s not like a scam or fraud,” they say. “You’ll get cellular service, but it’s really very user-specific if that’s the right plan for [you].”


Dollar Scholar

Still learning the basics of personal finance? Let us teach you the key financial lessons you MUST know. Get helpful tips, expert advice, and cute animals delivered to your inbox every week.

Register


More money :

Wireless taxes and phone billing fees just hit a new high

5 Surprisingly Easy Strategies to Lower Your Monthly Bills (Because You’re Probably Getting Ripped Off)

Here’s how to get the government to pay $30 a month for your internet bill

© Copyright 2021 Advertising Practitioners, LLC. All rights reserved.
This article originally appeared on Money.com and may contain affiliate links for which Money receives compensation. The views expressed in this article are those of the author alone, not those of any third-party entity, and have not been reviewed, endorsed, or otherwise endorsed. Offers may be subject to change without notice. For more information, read Full Money Disclaimer.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.