Leasing a Telephone Is Usually Uncalled For
Talk about a bad deal. Anne Werner paid somewhere in excess of $600 for a $10 phone--and she didn’t even get to keep it.
Werner absent-mindedly leased a telephone, paying between $4 and $7 a month for the clunky but dependable rotary-dial relic that she had had since long before the breakup of Ma Bell and deregulation of the telecommunications industry in 1984. It wasn’t until she moved last year that she realized she still had the phone in a little-used bedroom of her house--and that she had been paying through the nose for it.
“I’m embarrassed to admit I did this,” says Werner, director of community services at United Seniors Health Cooperative in Washington. “I’m a consumer advocate. I should have known better.”
But when it comes to phones, millions of people do what Werner did. They lease--paying many times more for the leased equipment than they’d ever dream of spending to buy it. Sometimes consumers even forget about the phones, shoving them in closets and attics when they buy newer models, continuing to pay lease fees that range from $4 to $20.95 per month, every month, for years on end.
AT&T; says 5.5 million of its customers lease their phones and that 90% of them have been leasing since Ma Bell broke up, spinning off a plethora of local and long-distance corporate offspring. GTE estimates it has about 2 million leasing customers. And industry experts estimate that somewhere in the neighborhood of 3.5 million people lease phones from other telecommunications firms, including Sprint and Southern New England Telephone. Together, that’s about 11 million people, paying more than $55 million a month.
“This is a consumer rip-off at its finest,” says Jordan Clark, president of the United Homeowners Assn., another Washington-based consumer group.
Clark was introduced to the issue last year, when he found out that his elderly father-in-law had been leasing two phones from AT&T.; The cumulative cost for those phones since 1984 was $1,100--about $110 a year, Clark says.
“We were outraged. The immediate thought that came to mind was how many other people out there are doing this?”
When he found out, Clark started to campaign for change. He’s trying to persuade the Federal Communications Commission to sponsor telephone leasing reforms--or at least to demand more disclosure from the phone companies. However, at a time when Congress is debating an overhaul of the entire telecommunications industry, Clark’s efforts have met with little success. Regulators simply have bigger fish to fry, Clark says with a sigh.
Telecommunications giants argue that consumers choose to lease and that government ought not to mess with free-market choices.
To a great degree that’s true. Almost everyone who leases a phone has the option of turning it in at any time. (A small number of leasing customers have three-month contracts, but nearly everyone else leases from month to month.) And the high cost notwithstanding, there are a few good reasons to lease. For instance, if you want to try out phone equipment before you buy, it might be wise to lease for a few months. Or if you’re in temporary quarters and don’t want to move the equipment to a new place in a few months, it might make sense to lease.
Phone companies also argue that there’s security in knowing they’ll replace or repair your phone if it breaks, no questions asked. Or that if you decide you want a different color or model, you can simply trade it in.
But in today’s market, leasing for the long haul is financial folly. Lease rates are simply too high given how cheap it is to buy.
Dozens of stores, from Home Depot and Radio Shack to Circuit City and Robinsons-May, sell phones, at prices ranging from $9.95 for a simple touch-tone model to $200 for a portable phone with an answering machine. Phone company stores sell them too.
The single-line touch-tone phones GTE charges $4.35 per month to lease would cost less than $25 to buy retail. So if the phone you lease doesn’t break--or if you don’t tire of the color--within six months, you’re gonna lose money. Moreover, if you’ve been leasing the same phone since 1984--as many people have--GTE has long been willing to sell you that phone for less than $10, says Larry Cox, a GTE spokesman in Thousand Oaks.
However, some consumer advocates complain that consumers--particularly elderly people, simply don’t realize they can turn in a leased phone.
Everyone was informed of the choice back in 1984, when phone regulations changed. And although most people immediately grasped the financial logic and bought their phones, several million either did not understand the notices or ignored them.
“We think a lot of people lease phones because they don’t really know that there’s another option,” says Deborah Zuckerman, an attorney with the American Assn. of Retired Persons. “Leasing a phone isn’t necessarily a bad idea--it depends on the person’s needs. But it is important to know what the options are and what it costs you.”
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Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message kristof@news.latimes.com on the Internet.
