Update: Assurance Wireless announced on Feb. 3 that it is lowering per minute charges for calls to 10 cents a minute.
Assurance Wireless is offering a cellphone and 200 minutes of calls for free to low-income people -- a noble goal but one that could prove costly if the users stick with the free phone service and buy more minutes after they've used up their 200 free minutes in a month.
The program, which started in December, offers the free prepaid service for people who have incomes 135% below the federal poverty rate -- $14,621 per year for a single person and $29,768 for a family of four, for example -- in New York, North Carolina, Tennessee and Virgina.
If household income isn't that far below the poverty level, people can also qualify by receiving government assistance such as Medicaid, food stamps, Supplemental Security Income, Section 8 housing, the National School Lunch Program's Free Lunch Program, and other government programs.
The free phone program will be expanded from east to west over the next year with the ultimate goal of being available nationwide, said Gary Carter, manager of national partnerships for Assurance Wireless, in an interview with WalletPop. Customers get free voicemail, call waiting, caller ID, 911 access for emergencies and 200 free minutes per month.
To use more than 200 minutes per month, an Assurance Wireless customer pays 20 cents per minute for a call and 15 cents for text, e-mail or instant message. The 20-cent a minute cost is double what many other prepaid phone plans are, including Boost Mobile, which is in the same family as Assurance Wireless.
Assurance Wireless is a division of Sprint, which also owns the prepaid phone services Boost Mobile and Virgin Mobile.
As many companies have done during the recession, Assurance Wireless is offering a free service to the unemployed, or underemployed, during a rough time in their lives with the hope that they'll stay customers when they get back on their feet financially.
Nice, sure. But why does it cost double for more minutes when one of the parent company's prepaid plans is 10 cents a minute?
"We are evaluating that right now," Carter said, adding that Assurance Wireless wants to make it in line with what others are charging. "We're making sure that it's priced right," he said.
Virgin Mobile already has rates as high as Assurance Wireless: 20 cents per minute for a call and 15 cents per text message, e-mail or IM.
It's a huge market that Sprint is getting into here. The unemployment rate is high and poverty rates are growing. Using Census data, Assurance Wireless estimates that more than 4 million people are eligible for its service in the four states it is in.
Cellphones are becoming more of a necessity, and I suspect that as with many gadgets, Assurance Wireless customers will just go ahead and buy more minutes when they need them instead of going through the hassle of buying another phone and signing up for a new prepaid service.
Inertia can affect how much money you spend as much as the cost of a "free" program.
Aaron Crowe is a freelance journalist in the San Francisco Bay Area who can be found at www.AaronCrowe.net
Take the first steps to building your portfolio.View Course »