What's the Cheapest Long Distance?

Ask 10 people the cheapest way to make long distance calls, and you'll get 20 different answers. The field is wide open, with calling cards, cell phone plans, Voice over Internet Protocol (VoIP) technology, and land lines all vying for dominance.

So who's really got the best deal for making long-distance calls? Let's compare them.

Land lines
This is the old-fashioned way, through your area's phone company. Everyone knows by now that your local phone company isn't likely to have the best rates. Websites such as MyRatePlan.com and SaveOnPhones.com have search engines that compare rates. Typically, for state-to-state calls, they start at 7 to 9 cents a minute.

For example, Credo charges 5¢ a minute on top of a monthly fee of $5.95, and donates proceeds to charity.

Verizon also offers unlimited plans for all of the U.S. and Canada. Those start at $48 a month. If you're talking for fewer than 500 minutes, though, most cell phone plans are cheaper.

Cell phone plans
The basic cell phone plan for a new subscriber costs about $40, and that grants about 500 minutes, or 7.5 to 8.3 hours of talk time a month. Often, the best talk time deals are for evenings or weekends.

Add taxes to that. The state with the highest cell phone taxes is New York, with almost 22% (making the bill around $51). If you really want to save, move to Nevada, where the tax doesn't even scratch 7% (a bill of around $43).

So given 500 minutes, you're paying 10.2 cents a minute in NY and 8.6 cents in NV. That's a lot more than you have to. You're paying for the convenience of the cell phone.

There are smart workarounds: You're on an iPhone. Your sister is on an iPhone. Because you're both AT&T customers, you can talk to each other for free. Ask the people you talk to often which cell phone plans they're on, and you can often avoid paying for "in-network" calls that way. That's great for calling friends and family, but obviously, not everyone can use this option for all of their calls, which rules it out as a primary communication method.

Calling cards
If you don't make many long-distance calls, or if most of the people you call are included on your cell phone plan, consider dropping your long-distance service entirely and using a pre-paid phone card for the few times you need to make calls.

Once you call in using the card company's toll-free number, rates can be as low as 1 cent to 2 cents a minute. But be careful! Some cards maintain their low prices by rounding up the time of your call to their favor.

If you only talk for a few seconds, they'll charge you for three minutes. So minimize that damage, find one with minute rounding of one or two minutes. Also look out for connection fees, maintenance fees (a fee deducted from your funds the longer you keep your card), and surcharges to call toll-free numbers. Read the fine print, and get a card without these things. Some cards have "carrier service fees" of 10% to 20%, too, but that's harder to avoid.

When all the fees are considered, count on about 3 cents to 5 cents a minute for a reputable card. Then you're just paying for the costs of the calls.

Here's a smart tip: If you call a specific foreign country often, see if your city has a neighborhood popular with immigrants from there. The stores in that neighborhood are most likely to sell calling cards with the best rates for that specific country.

It's free! Except it's not.

You can make free voice or video calls to anyone else who has Skype running. You can also buy credits that let you call land lines (non-Skype-connected phones) with it, which is one of the ways this "free" service makes money. Doing that costs about 2 cents a minute inside the United States.

Or you can get an unlimited calls to regular phones in the US and Canada using Skype for about $2.95 a month.

But it's not really free, because you have to have a computer with a high-speed Internet connection. That connection costs most people about $30 a month. You can use it for other things, but you have to have it to talk.

Still, most Americans already have those things. If you're watching this video, you probably do, too. Since many computers come with cameras and microphones these days, you may not have to buy anything else.

As long as you have a WiFi signal, you can also use it on an iPhone or iPod touch without paying a cent to the phone company. Other applications can do the same thing -- Yahoo Messenger, for example, and Apple's iChat -- but Skype is becoming the global standard that people are likely to be familiar with regardless of their home country or operating system.

There's also something called VoIP, or voice-over-Internet protocol. I call it Internet Phone Service for short. One of the biggest players in that arena is Vonage.

Its starting rate is $18 per month for 500 minutes, or more than 8 hours of talking. To make it unlimited, you'll have to pay $25 per month. That's about what you pay for Net2Phone, a competitor.

To make Vonage work, you need a regular phone, a high-speed Internet connection, and the Vonage Adapter. That costs $79 once, but you can often get it free when you sign up. You don't even have to have your computer plugged in -- it uses the web connection, not the computer.

Internet phone service isn't perfect. For example, connections can be jittery, and they won't work if your Internet or your power is out (unlike a simple, old-fashioned land line phone that doesn't require use of an outlet -- it will often work in a blackout because it draws power from the phone company's batteries). But you can travel with the device and use it wherever there's a high-speed web connection.

This little device uses the Internet but it needs your computer to work. It plugs into its USB port, and you plug your regular phone into the MagicJack. After that, you can make unlimited calls.

MagicJack costs $40 for the first year, and then $20 a year after that, which breaks down to $3.33 a month for the first year. That's still more than Skype.

There's a catch. Your bandwidth has to be pretty fast to make it work well. And even if you have fast bandwidth, you really have to stop any other online activity while you're on the phone -- no downloading, no surfing, no file sharing, really no anything as long as the conversation is going on.

The conversation gets choppy. Syllables get lost. The person you're talking to may have to keep asking you to repeat things. But if you can refrain from using any other bandwidth during your conversations, $40 isn't much to talk all the time for 12 months.

Our verdict

Sometimes Skype can have the same problem, too (although it seems more reliable). But let's face it: It doesn't cost $40. As long as both parties are using Skype, too, it's totally free. But if one of you is on a regular phone, then that $40 is all you need using something like MagicJack. But only if you can keep your hands off the computer, and only until the technology improves.

So if you can convince everyone you know to move to Skype and you can keep from playing around on the Web while you're talking, Skype can be done for free. If you call outside, non-Skype numbers, you can get that rate down to 2 cents a minute.

Skype has the added benefit of allowing you to use video cameras, too, which MagicJack won't do.

Sorry, MagicJack. You may be $40 a year, but you're still sound-only, and if we have to keep our hands off the computer while we talk on the phone, we might as well use Skype, which doesn't clutter up our desks.
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