Updated on 10.18.11

Saving Pennies or Dollars? VoIP Options Versus a Landline

Trent Hamm

saving pennies or dollarsSaving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Al writes in: I’ve been trying to figure out whether it’s worth it to switch my home phone service to Skype or Vonage or Magic Jack or one of those other services. Do you save pennies or dollars by switching?

Well, let’s look at the three plans you named.

Skype offers unlimited long distance calling for most of North America (including all of the U.S. and Canada) for $7.99 a month. To receive calls, you’ll also need a Skype phone number, which costs $6 per month. You also will have to buy a phone adapter or use your computer for calls. You’ll also need high speed internet, of course.

Vonage offers unlimited long distance calling for the entire U.S. for $24.99 a month, but there a lot of different discounted deals floating around out there that lowers the price a bit. You’ll also need high speed internet.

MagicJack offers unlimited long distance calling for the entire U.S. for $40 for the first year and $20 for each additional year. You’ll also need high speed internet, of course.

MagicJack has the lowest prices, but also has the worst customer service and quality of service reputation. I’ve had very little problem with and heard very little complaint about Skype or Vonage, though I found Vonage’s setup to be a bit easier and Skype’s prices are lower.

What about ordinary phone service? You’re going to find a huge variety in available plans depending on who your local provider is. The local provider in our area provides unlimited free calling to anywhere in the U.S. for $46 a month. There’s also a more basic package for around $22 a month that offers free local calls, free incoming calls, and nationwide long distance for $0.10 a minute.

So, if you have high speed internet anyway, you’ll save money using any of the VoIP providers. How much money you save depends on what phone offers are available in your area, but this is definitely in the “save dollars, not cents” area.

Now, if you’re only going to get high speed internet because you intend to use it in part for the phone service, it depends on how much the internet service actually is and how much you intend to utilize it for other things. Increasing your internet speed beyond a typical low-end DSL or cable connection won’t make a whole lot of impact on how you surf the web. It mostly only shows up with things like streaming video or online games like World of Warcraft and it will certainly improve your call quality with VoIP services like these.

Will you get additional value out of high-speed internet beyond just Skype or Vonage or MagicJack? If the answer to that question is yes, then switching to VoIP will probably save you some money. If you’re unsure, then the switch probably isn’t worth it because of the extra internet costs.

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  1. Him says:

    We’ve gone with Ooma for the past 3 years. We’ve completely eradicated our cell phone bill; we got in early enough that we don’t even pay any of the taxes/fees that newer users have to pay. Call quality is good, and outages are rare.

    That equates to saving $35/month on our phone bill. So yeah, we’ve saved a bunch by switching to VoIP.

  2. Dale says:

    The biggest dissuasion to getting VoIP for me and others should be: when your internet goes out, your phone goes out. Unless you have a cell phone to make emergency calls, you won’t be able to contact the outside world. Just something to think about.

  3. Des says:

    We’ve used MagicJack for the last two years without issue. I expect that if we have a problem it will be a pain, but we’ve saved so much it is totally worth it. $20 a year vs $168 for Skype or $300 for Vonage – yeah, I’ll deal with the bad service when the time comes.

  4. valleycat1 says:

    #2 Dale has a point. Our office went to VOIP, and our satellite office location experiences internet or phone outages fairly frequently (every other month, approximately. So we’re without phone or internet (our company also uses a web-based tech problem reporting system). Someone has to use their cell phone to call the central office in another town, which complicates things because the tech guys don’t recognize the incoming # and often ignore the call, so we have to wait for them to check voicemail, & it’s hard for them to contact us in return for more details or to give us status updates.

    At home we kept our land line with just the most basic service & the per-minute long distance plan (our DSL is attached to the land line); we only use the long distance land line in an emergency instead of our cell phones or email. I personally don’t like VOIP, at least what’s available to us, because there’s a voice delay, sometimes an echo, and the 2 parties end up talking over each other if one pauses during a sentence.

  5. jackie says:

    My office uses VoIP and our phones go down regularly, sometimes when out internet is down, sometimes just the phones.

  6. Lance says:

    I had been using Vonage for several years. The cost of that service has been continually creeping upward. So, earlier this summer – I switched to a combination of Google Voice and an Obihai device – which allows me to make and receive calls over my regular landline phones – at no monthly cost. There was an initial outlay of about $50 for the Obihai device, and about $10 to move my Vonage number to a cell phone plan, and then immediately to Google Voice. So – for about a $60 one-time cost, I now save $25/mo (it paid for itself in about 2.5 months). And now, going forth – I have free phone service on the phones I’ve always used (unless Google Voice decides to charge for making/receiving calls via their service).

  7. Adam says:

    We switched to Ooma back in March. We then eliminated one of our cell phones and have now switched our other cell phone to a prepaid very low minute plan. Our phone bill went from $80/month to less than $20 per month (with some upfront costs). We already had high speed internet, so that’s $60 a month back in our pocket. One of the best cost savings things we’ve done, other than sell one of our cars, this past year.

  8. Kacie says:

    You’re forgetting several other devices. First, there is a new MagicJack Plus that doesn’t require a computer to be involved.

    Next is Nettalk, and another is Ooma (mentioned above).

    If using one of these devices allows you to lower your cell phone plan down to the bare minimum, or to go with a pay-as-you-go plan, the savings can be substantial.

  9. krantcents says:

    I use my cell phone for my main phone number. I have no landline.

  10. Kacie says:

    But @9 — is your cell phone on the smallest plan you can have? Sometimes having a VoIP landline + barebones cell plan will save you even more

  11. Sara says:

    I use Google Voice (free) to make calls at home, which saves a lot of minutes on my pre-paid cell phone.

  12. Josh says:

    MagicJack requires your PC to always be ON if you want to receive a call.

  13. Chad says:

    My house has poor cell reception and I was never a huge fan of VOIP so we use google voice and “metered” land line service. Our phone bill is less than 14 a month (including taxes and fees). We use GV to connect all our calls and if the internet goes out we can still can call out if necessary. Another huge saver for me was to switch my cell service to Net10. I never used many minutes so I now get cell phone service for $15 a month which is the cheapest I could find anywhere.

  14. Parisian Thinker says:

    Sadly, no matter what you choose in the USA, you are being ripped off. Comparing the USA with France for example, you will find in France blazing fast high speed internet, phone, free long distance calls to 99% all countries including USA, as well as TV for 23 euros a month.

    France also provides lifetime contracts of employment, first in medical care according to WHO (World Health Organization), free education, retirement paid by France, public transportation, 5 weeks of vacation, world class museums, excellent food and wine, and civility.

    This is now a global world. You don’t have to take it anymore.
    You can choose.

  15. carlos says:

    I purchased an Obi 100. It was on sale so the device itself is inexpensive. I use it with Google Talk and a regular phone. So unlike before, where I could only make outbound calls, and my computer had to be on all the time, I can now get calls in and out without paying anything each month. The sound quality is perfect and I’m only paying for internet, but I have that anyways. I strongly recommend this solution. Keep your cell phone for 911.

  16. Tom says:

    I’m not trying to pick you apart, but France has free education just like the US has free education (with military service, or scholarship). It does cost a lot less, but it’s not free.

  17. Nate says:

    I haven’t had a land line in years and now with the new smart phones I can use free apps like TextFree with voice to make calls, even overseas, for free as long as I have a wifi signal or data plan.

  18. Kevin says:

    If you live in an area susceptible to disasters (I’m in the Bay Area), having a landline with a phone that draws power off of that (not plugged in to an AC adapter) is essential should disaster strike. VOIP also requires power and cellphones aren’t an option as most cellphone towers do not have battery backups should the power go out. This of course is a value call and depends on what’s important for you.

  19. Dana says:

    I’m not sure if this is the case with all of them, but with Skype, you can’t call 911. We keep a cheap prepaid phone in case of emergencies.

  20. Diane says:

    My mom recently switched to Time Warner’s phone via cable system – she has her cable and internet through them, and they offered a bundline option. Unfortunately, it took over a week to make it work halfway right, and even after much fiddling on the part of the cable guy, there’s a ton of static on the line. She’s switching back to Frontier landline now. At 83, I didn’t like the idea of her without phone service if the power went out. Even if she did have a cell phone (which she won’t get), during disasters, they are susceptible to outage and overuse, too.

    Cost isn’t always the only consideration.

  21. Luke G. says:

    @Des (#3)

    “$168 for Skype”

    Huh? I pay for a Skype-In phone # yearly and an unlimited US+Canada subscription yearly. IIRC, it costs me all of around $60 a year. That’s $5 a month. There are discounts for paying yearly, and a discount on service when you rent a local #.

    Did you base your estimate on the separate, monthly prices?

  22. Pete says:

    @all who want phone service in the case of a power outage: Do keep a corded telephone !!! Or put your cordless set on a UPS. I remember my wife asking what that infernal beeping was, she couldn’t understand what the other side said on the phone… No, I didn’t turn the beeping off.

  23. Sabine says:

    We use Skype and Google voice and prepaid cellphones and we save about $80 per month.
    Most phone providers offer a cheap landline for a few $. Verizon for example has one for $3. You would pay $0.10 per minute, but incoming calls are free and it’s a good option to have a phone in case of power outages/emergencies.

  24. Bill in NC says:

    Ooma is only around $5/month (taxes) even if you buy the newer units.

    DSL here never goes down, and only costs $15/month (with or without phone service).

    We currently have a land-line but @ $45/month (no metered service here) it will soon be replaced.

  25. zoranian says:

    Big caution, taxes on Vonage are about another $10-$15 per month. So it’s really $35 or $40. Also, if the power goes out, your phone goes out too. We have switched to a pay as you go cell phone for our “home” phone. We use cell phones 98% of the time, but they are long distance (we are on family plans with relatives in other states). Some people have to have a local number, we use maybe 80 minutes a month at the most. I bought a “double minutes” phone from Tracfone for about $20 and it gets better signal than our cell phones do. I can also send texts for 1/3 of a minute, which is great since I don’t have texting on my phone. I figure it’ll average to about $12 a month to refill with minutes, probably buying a relatively large package every 3 months. Best of all, no taxes (I think I paid less than $1 of taxes the last time I purchased a refill).

  26. AnnJo says:

    In my work day, I can spend three or four hours on the phone. The quality of sound on land lines vs. most cell phones and VOIP systems is a huge factor in how tired I feel at the end of the day. Straining to hear over static is downright tiring. Many offices of colleagues have switched to VOIP in the last two or three years, and about 70% of them say that they regret it and although it offers more bells and whistles, they prefer the trouble-free reliability and clarity of land lines.

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