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How we cut our phone bill by 80%

Phone service is quickly becoming a commodity of negligible value, like email. (How much did you pay to send your last email message? You could work out your cost in network access, electricity usage, etc., but the time lost in calculating would be more than a month of messages sent.) “Making a phone call” is even becoming an anachronistic phrase as it less frequently involves something recognizable as a “phone”. If you have Internet access in your home, adding phone service runs about a nickle a day with services like MagicJack. Cellphone service isn’t nearly so cheap, but it’s getting closer all the time.

A couple of years ago, our phone service consisted of my $65/month Sprint cellphone and Glenn’s $26/month Verizon home service. We enjoy talking with all of you, but $91 is awfully high just to chat. I tallied how many minutes I’d actually been using each month, and decided to move to a T-Mobile pay-as-you-go plan, which I ended up using at a rate which came to $39/month.

A little over a year ago, I was in the market for a new pocket computer, and decided after some research that the iPod Touch was the only real contender at the time. We had our initial differences, but it eventually became an excellent tool which I use a dozen ways each day. One use revived the Skype account I’d created long before, but almost never used. I started using Skype on the iPod for all my outgoing calls at home, causing great confusion regarding callback numbers, but extending the life of my T-Mobile minutes. Over 10 months, I averaged 4 Skype hours per month at a cost of $6. The same minutes on the phone would have come to $26. I was still putting an additional $21/month on the phone, making it $27 altogether, saving $12/month over the phone by itself.

During this year, we also had our adventure in West Virginia, and were still paying our $26/month to have our calls forwarded to us (and to have service on at the house, though our housesitters never used it). When we came back and found the phones weren’t working, I questioned whether we really needed them, and thought about alternative plans. I settled on porting the house number to my cellphone so we could keep it, and canceling the service. At the same time, having bought a new iPod with camera and microphone, I decided to switch all my call making and receiving to Skype. To receive calls, I bought a SkypeIn number and added it to my Google Voice account so my iPod would ring when someone calls me. I added a Skype subscription with unlimited U.S. & Canada calling, and the two together come to $9/month.

My T-Mobile account lets me buy 1,000 minutes which last for a year for $100. I haven’t used any of them in the last couple of months, and expect them to last us the full year, bringing the cost of the cellphone service to $8.33/month.

So, we’ve ended up more or less where we started. We have home phone service in the form of Skype and the iPod (with long distance and video calling to boot!), and we have a cellphone. We paid $91. We pay $17.

It’s tempting to replace the iPod with MagicJack and bring it down to a flat $10. So far, I’m selling myself on Skype’s advantages, including the ability to use it anywhere there’s WIFI, integration of my address book, and a “phone” which rings in my pocket instead of pealing through the house and waking Glenn.

Will the same sort of plan work for you? It might if you’re like us in a few ways:

First, this assumes you’re already paying for and plan to continue paying for broadband (cable/DSL) Internet service. We’d be doing this regardless.

Second, it assumes you’ll pay the upfront costs for the hardware. That’s $35 for MagicJack, or around $200 for an iPod Touch, an Android PDA (is there one yet?), or some other pocket device which can make and receive calls through Skype or a similar VOIP service (unless you’re willing to walk around talking with your laptop in hand). I use the iPod enough to recoup the investment even without phone service, and don’t consider it part of the cost.

Most importantly, if you want to keep the cellphone side of the equation to a minimum, it means you’ll do most of your talking somewhere with WIFI. We’re home most of the time, and this is fine for us. If you work from home, you’re all set. If not, does your workplace have WIFI? I’m finding it more and more difficult to find places which don’t have an unsecured WIFI network on hand. I walked to the Post Office recently and stopped to make a note on the iPod. I noticed an open network was emanating from the house next to me, and sure enough, off went my note into the cloud. Offices, stores, and restaurants are increasingly offering WIFI connections, many of them intentionally.

At least one Big Player seems to think IP is the way of all data in the near future, either on ubiquitous WIFI or something like it. For now, the cellphone’s necessary for emergency use (power outages) and use on the road (“Hello, where is your house, exactly?”), but it may not be long before Skype is all we need. (If MIFI were cost effective, we could toss the cellphone today.)

I say grab the opportunity while there’s still a chance that you can go for a walk and that thing in your pocket will keep its mouth shut. While thinking about canceling the home phone service, I considered canceling the cellphone as well, and might have done it if Glenn were well. What would be the worst that would happen if the iPod were our only phone and the cable Internet service was down? I’d have to walk/pedal a half mile to Dunkin Donuts and make a call on their WIFI. Our great-grandparents walked that far to make a call at the general store. Their parents never heard of such gadgets. They all managed to get by, and we could, too.

Reading through the above, there are a lot of options to consider — pay-as-you-go phones, assorted VOIP services, and we haven’t even considered online voicemail-only companies. Your circumstances may not match ours, but there’s likely to be something in here which you could use. It’s worth considering in any event. Practically-free phone service may not be here yet, but if you’re looking to save a few bucks each month, you may be able to do a lot better than you think right now.

And don’t forget: Whenever you hear the phrase “a few bucks”, you should run it through the compound interest test. It may sound like a lot of bother to switch phone providers or move to Skype, but what’s the result over time?

In our case, we’re paying $74 less a month, or $888/year. Putting that away at 8% will net $5,209.54 in five years.

Worth the trouble now?

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