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Paying $150 a Month or More for Cellphone Plan? You Have Options

Man talks on his iPhone. Apple denies plans to sell mobile services directly to consumers.
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Even though most of us depend on our smartphones to keep us connected to work and family throughout the day, we're not happy with the toll those digital tethers take on our wallets.

Market competition is bringing relief from high prices for light data users, but for many Americans, especially those with families whose viewing or gaming habits gobble up big chunks of data, a monthly phone bill of $150 or more is par for the course.

"The average user of the top four carriers uses about 2.9G (gigabytes) a month, which is a lot of data," said Brad Akyuz, director of connected intelligence for market research firm The NPD Group.

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And overall, Americans are paying more for data than mobile customers elsewhere in the world.

Think tank New America's Open Technology Institute looked at how much people in cities around the world pay for mobile data for a 2014 report and found that residents of Copenhagen, Bucharest and Berlin could purchase 3G of data for less than $10, while residents of Paris and Seoul were able to do so for less than $20. The cheapest option from any of the major wireless carriers in any of the U.S. cities was a $30 monthly deal from T-Mobile.

(Note: Researchers examined data-only plans that connected to the Internet via a hotspot or "dongle" because parsing between talk, text and data on mobile phone plans made price comparisons too difficult, said Sarah Morris, senior policy counsel for New America.)

Seong Joon Cho | Bloomberg | Getty Images

Morris said consumers face the same problem because the regulatory climate in the United States prevents the kind of transparency and standardization that customers need to comparison shop effectively.

For instance, Mintel, another market researcher, found that what we get for our money varies tremendously. While 19 percent of people who paid over $150 a month for cellphone service had unlimited data and more than a third had a 10G or higher monthly allowance, nearly a quarter had 4G or less.

So what's a smart phone user to do?

Edgar Dworski, founder of the website ConsumerWorld.org, said customers looking for value can realize "significant savings" by switching to no-contract, prepaid plans

The prepaid sector of the wireless marketplace has come a long way from its roots. Each of the four big national carriers—Verizon, AT&T, T-Mobile and Sprint—offers prepaid brands that run on its network, and the carriers also sell spectrum space to independent and regional providers who provide prepaid services.

Some people are reluctant to go with prepaid, though, because there's a "stigma" associated with its use, Dworski said.

"People think prepaid services are for poor people…but frankly, that's really where the value is these days," he said.

Perceptions aside, there are also some practical and logistical hassles with prepaid offerings, he admitted. Some of the prepaid offerings from both the big four as well as smaller providers have slower speeds, still charge for roaming, have monthly caps on call minutes or texts, or even play advertisements during outgoing calls, for example.

More important, the cheapest options out there are also far stingier with their data allotments, with some offering less than 1G a month.

"They're trying to get people to buy more data, because with these plans you sometimes have to overbuy or you're going to be stuck with a penalty fee," Dworski said.

Morris, of the New America think tank, agreed that carriers capitalize on that fear factor by keeping overage charges high.

"Mobile carriers in the U.S. tend to implement data caps in a way that monetizes them," she said. "If you can charge for overage, there is an incentive to keep the allotted data caps fairly low."

Mobile operating system default settings also can catch users unaware, with costly consequences.

Some iPhone users, for instance, were upset when iOS 9 debuted with a function called "wifi assist" that automatically switched from a weak wifi signal to a cellular one if the wifi connection was poor, causing their data usage to soar. (Android has a similar function called smart network switch, but the default is off, not on.)

Another problem is that customers don't always know the speed of their connection or how much data they're consuming for a particular activity. The New America report said advertised speeds might not always be available or accurate since wireless signals can be impacted by factors like weather and distance. Wireless carriers' own estimations of how much data it takes to, say, stream a movie, can vary widely.

"I do know quite a few cell phone owners feel plans are confusing," said Bryant Harland, technology and media analyst at Mintel. "Ultimately, most customers are going to go with whichever options they can afford and... whichever option seem easiest," he said. "I definitely think they'll pay for more data than they need just to be on the safe side."

You can avoid paying for data you don't use by tallying up how much you do use regularly, Dworksi said, and setting up alerts to let you know before you go over your limit.

"Most consumers are not tuned into their exact usage patterns," he said. "You have to examine your bill see what your actual usage is and try to find the plan that most closely matches your service, keeping in mind what the penalties are if you go over. Once you try to align your service plan to your usage pattern, you'll be in pretty good shape."

John Oldshue, founder of SaveOnPhone.com, a site that compares mobile phone plans, said the emergence of a bring-your-own-device business model also is a boon for users, making it easier for them to switch carriers when a better deal comes along.

"That's a good thing for consumers because you're going to have the competition from the four majors and discounters who are providing service at a discount," he said.

A T-Mobile iPhone 5
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A T-Mobile iPhone 5

Customers fed up with high smartphone bills could also benefit as upstarts start forcing even the major carriers to be more competitive on price.

"You've just got to shop," he said. "If you're paying more than $60 a person or more than $100 to $130 for a family plan, you're probably paying too much."