The Young and the Wireless
Cellphone Companies Love to Make
Money Off Teenage Customers

By Karen Blumenthal
Staff Reporter of The Wall Street Journal

Chances are, if you're a teenager, you've already got a cellphone. While your parents may struggle to remember how to change the ring tone, you probably know how to download a better one. You may also be a text-message demon and a whiz at sending pictures from a phone.

This is exactly what cellphone companies want to hear.

While cellular companies make most of their money selling service, their real gravy is in the extras: charging 5 or 10 cents for each text message or $1 or $2 for each downloaded ring tone. And in every category, teens typically make very good customers.

As a result, young people are "probably the most hotly sought-after group by retailers and carriers," says Mike Braun, a spokesman for RadioShack, which sells cellphone services through thousands of stores nationwide.

But in their slick television ads and other promotions, cellphone providers angling for your business sometimes skip over a few key details. Here are a few things it helps to know when shopping for your next phone:

Cellphone companies want to win your business--and keep it, too. Of the students who began college this year, 69% arrived on campus with cellphones, up from 57% last year, according to Student Monitor, a market research firm. And the financial commitment is big: Those students spend an average of $56 a month for their service, Student Monitor says. Participation may be even higher in some big cities. AT&T Wireless recently surveyed 500 teenagers between 13 and 17 in Los Angeles and New York and found that 86% already had a cellular phone.

Cellular service companies covet this group because they believe many high school and college students are more likely than older people to use cellphones exclusively and forgo getting a landline altogether. That means service providers will try to lure you and your family with hot introductory offers, like cool phones for low prices or free extra minutes. Many carriers also have added family plans, where family members share a pile of minutes for a fixed monthly fee, plus about $10 to $20 a month for each additional phone.

But cellphone companies wouldn't offer such deals if they didn't think they could get something in return. Many of these attractive deals come with hitches, like long-term contracts or more services than you really need. Compare the offerings of the different service providers on Web sites like telebright.com to find the best package for you.

A cool phone is totally useless if it doesn't work when you need it. Most cellphone companies promise extensive national networks. But within every region are dead spots where connections are spotty or nonexistent. Before you buy, ask friends and neighbors how their service is in the areas where you're going to be making calls. Do they have a lot of static on the line? Do calls break off frequently in mid-sentence? Some new phones work only in digital service areas, which may mean more dead spots, at least until the networks are built up.

That nifty picture phone costs the cellular service companies a bundle--and they want you to pay for it. Cellular service providers actually pay up to several hundred dollars wholesale for those fancy phones that can send pictures or video or access the Internet. But to bring customers in, they offer phones at deep discounts. The tradeoff is customer loyalty: In order to qualify for the discounted phone, you'll be required to sign a one-year or two-year contract and undergo a thorough credit check to make sure you'll pay up.

For people who have damaged credit or no credit history at all, prepaid phones are the more practical choice. They are widely available at discount stores and electronics stores. Prepaid phones work a lot like the discount long-distance phone cards you see at convenience stores. You buy a card with, say, $50 worth of talking time, and when you run out, you have to refill the card to make more calls.

You'll pay more for the phone, $60 to $150, instead of$50 or less with a contract. And you'll pay more for each minute of service as well, though prices have come down sharply.

While you won't have a monthly bill or surprise extra charges to worry about, many phone cards often expire after 30 or 45 days, meaning you'll have to refill regularly if you don't use up the full amount.

Hidden charges are everywhere. Text messaging, sending photos, downloading ringtones and calling from outside your service area all may carry additional charges, meaning $60-a-month service can balloon to $300 if you aren't paying attention. Many companies offer package deals, like a bundle of text messages for $5, for heavy users. In addition, if you lose or damage your phone, a replacement will cost far more than you initially paid, unless you buy insurance-another monthly add-on.

Also take a close look at the company's service map to see which areas are covered by its own network and which areas are considered "roaming" territories, where you'll be charged extra per minute. Remember that both incoming and outgoing calls count against your minutes.

And don't forget about taxes: State and federal taxes can add 15% to 25% to your bill. On phone cards, taxes are built into the rates, which is one reason prepaid options appear to have higher per-minute costs.

You're bound to one carrier when you get a phone, but you aren't bound to any one service plan. Each service provider programs its phones so that it can be used only on that carrier's network. So while you might be able to keep your number, you can't switch companies without buying another phone. (There are also big penalties for dropping your service with a provider before your contract expires.)

But if you find that you are paying extra for more minutes-or using a lot fewer minutes than you pay for-most companies will let you change to a more appropriate service plan at no charge.

Do you have a question for Consumer Ed about managing your money? Write to consumered@wsj.com.