Wireless Industry Pricing Plans Confuse Economists, Too Trying to unwravel the logic behind buckets o' minutes Tipped by axus 
Whether it comes to triple play broadband or wireless service, pricing plans are often designed to give the illusion of value -- instead of the real thing. Bundle plans are often designed to prevent direct comparisons with a competitor's service, and plans are almost always designed to get you to pay more money than you'd like. It's of course all based on mountains of data collected exploring what consumer's will pay. Saul Hansell at the New York Times explores in particular the wireless industry's pricing plan magic -- which apparently even occasionally dumbfounds economists: "The whole pricing thing is weird," said Barry Nalebuff, an economics professor at the Yale School of Management. "You pay $60 to make your first phone call. Your next 1,000 minutes are free. Then the minute after that costs 35 cents." To economists, it simply doesn�t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more. Hansell goes on to explore how people are so risk-averse, they're willing to pay more in base service costs just to avoid overage fees. The article seems to run with the undercurrent that it's the consumer that drives many of these bizarre pricing systems, and that were you to see wireless carriers as "avaricious oligopolists trying to gouge consumers for every penny they can" you'd apparently be mistaken. Hansell even goes on to suggest that carriers aren't even sure how much service costs them: In many ways, however, the least important factor in setting prices is the actual cost of providing cellular service. Cellphone companies resemble airlines, that other industry whose oblique prices exasperate consumers. Think of a cellphone network as one giant airplane that costs tens of billions of dollars to build. The cellphone companies don�t really know how much it costs to handle a call to Aunt Suzy in Syracuse, any more than an airline can calculate a specific cost for Seat 12B. Apparently, not only does telco wireless pricing confuse consumers and economists, it confuses the telcos, too.
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  kapilThe Kapil
join:2000-04-26
Chicago, IL | Oooh. Oooh. I know! Why doesn't telco pricing make sense to Economists? The same economists who missed the disaster that was the mortgage meltdown? The same economists who theorize that capitalism, i.e. the ability of corporations to grow period after period till the end of time is actually credible or even possible? Hell, I'm surprised that economists, as a group, can put on their pants the right way in the morning.
Telcos spend millions obfuscating and lobbying. Telcos don't even get telco pricing. I know, I've worked for a couple of them.
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»www.VoIPTrunk.com | |
|  | chimera
join:2009-06-09
Washington, DC Reviews:
 ·Comcast
| Re: Oooh. Oooh. I know! If you kept reading you would have noticed he then explained how their pricing does make sense to economists as these pricing models allow for price gouging due to consumers being risk adverse. The complaint economists have is that these pricing models do not reflect the reality of the costs and can only be sustained due to the ologoply market which is itself a market failure.
Now I do understand that teleco's can naturally establish monopolies due to how their cost infrastructure works, but any economist worth their salt ought to acknowledge that this forcing regulation since pricing using the standard model where profits are dictated by the cost formed by barriers to entry stops working in cases because the barriers this high. | |
| |  pnh102Reptiles Are Cuddly And PrettyPremium
join:2002-05-02
Mount Airy, MD | I have to agree with you here. Most economists are dumber than stumps. That entire profession is a joke.
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Blagojevich / Madoff 2012! | |
| | | | | Re: Oooh. Oooh. I know! It's amazing that the same people who scoff at gypsy fortunetellers will take economists seriously. | |
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|  DaveDudeNo Fear
join:1999-09-01
New Jersey
kudos:1
 ·ViaTalk
·Vonage
·Comcast
| said by kapil:Why doesn't telco pricing make sense to Economists? The same economists who missed the disaster that was the mortgage meltdown? The same economists who theorize that capitalism, i.e. the ability of corporations to grow period after period till the end of time is actually credible or even possible? Hell, I'm surprised that economists, as a group, can put on their pants the right way in the morning. Telcos spend millions obfuscating and lobbying. Telcos don't even get telco pricing. I know, I've worked for a couple of them. Considering Bush asked 18 times to investigate Frannie and Freddie Mac, for its viability i guess your right. Who knew you would be on Bush's side on this.
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| | | kapilThe Kapil
join:2000-04-26
Chicago, IL | Re: Oooh. Oooh. I know! | |
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 jmn1207Premium
join:2000-07-19
Reston, VA | Risk is a Major Factor I spend more than I should to have an "everything" plan because it minimizes the chance that I might be sent an outrageous wireless bill. It doesn't matter if the mistake was mine or the wireless conglomerate's, I can't afford the legal fees and damage it would create. I consider it insurance, in a sense. | |
| | | | Re: Risk is a Major Factor Or, maybe a SMARTER move would be to use a prepaid plan? Guess what, you won't ever GET a massive bill, because you've already paid for it. Spending money based on fear isn't very smart.
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The happiest countries are the most secular. The struggle AGAINST corporations is the struggle FOR humanity! | |
| | | chimera
join:2009-06-09
Washington, DC | Re: Risk is a Major Factor Except a pre-paid plan does the exact same thing. | |
| | | jmn1207Premium
join:2000-07-19
Reston, VA | Pre-paid is not much of an option with my new Blackberry. I prefer the convenience that my phone offers, there just aren't any legitimate options for service plans that meet my needs. This is similar to my TV plans. It always seems that there are 1 or 2 channels out of 80 that I really enjoy, but in order to get these channels, I have to get a more expensive package. | |
| | | | | | Re: Risk is a Major Factor TM does FlexPay Monthly on the BB plans. | |
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|  Boomer86never say roadkillPremium
join:2002-10-18
Walden, NY | If you don't have a smartphone or consume a lot of data, you'd be wise to consider prepaid service. When your bucket is almost empty, just refill it. Fever taxes and fees to confuse you on a monthly bill, fewer unpleasant surprises AND if your service sucks, buy a starter kit from another carrier and port out.
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"I finish things... that's what I do." (Walter Kowalski, lead character in "Gran Torino") | |
| | patcat88
join:2002-04-05
Jamaica, NY
kudos:1 | Then learn to check the real time minute/data usage offered by your carrier. | |
| | | jmn1207Premium
join:2000-07-19
Reston, VA | Re: Risk is a Major Factor said by patcat88:Then learn to check the real time minute/data usage offered by your carrier. What's to learn? You log in and check over the internet or call a number and have a recorded voice speak out the numbers. Simple as pie. That doesn't do much to help any dispute that I might encounter.
If my usage data indicated that I made 5000 text messages and I was only paying for 300 messages, even if I did not have anything to do with it, or these messages were never actually sent, it's a hassle. There is no guarantee that my provider would work with me to solve this problem, and I don't have the resources to compete with their legal teams. I could potentially have my credit ruined and my wireless service cutoff, leaving a pre-paid choice as my only option.
I'm not worried about my own actions, and I know how to check my usage, I'm worried about a mistake made by my wireless provider. I'm willing to spend a little extra money to reduce the chance of any overages being implemented.
How about a plan for $.0.15/minute talking, $.0.10 per text message, and $5 per GB of data transferred? With $20 in taxes and fees, typically I'd pay about $90/month instead of $110/month that I currently do, but with a nagging fear that it could be much, much higher.
I choose to have my usage unlimited, rather than my bill being potentially unlimited. | |
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| KearnstdElf WizardPremium
join:2002-01-22
Mullica Hill, NJ | personally the only regulation i want to see put on cell plans is being able to see what i will pay up front after taxes and fees. now i know on their TV/Radio/Print ads this wouldnt be possible due to the wide area those are seen. however i should be able to goto the website or a local wireless store and, ZIP gets punched into the computer and the true cost is spit out.
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[65 Arcanist]Filan(High Elf) Zone: Broadband Reports | |
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 ThrowDemsOutIf you can't convince 'em, confuse 'emPremium
join:2002-03-03
Mullica Hill, NJ
kudos:4 |  businesses tend to give discounts to customers who buy more
To economists, it simply doesn’t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more. That is not true. The record is very mixed in that regard. Sure you get discounts when buying cereal; dog food; and other items at Sam's club and the like. But you pay more when you use more electricity; natural gas; water; and other goods considered to have limited supply. I put bandwidth in that category - it is a resource limited by the infrastructure and the increasing costs of trying to supply an unlimited amount.
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| |  BF69Premium
join:2004-07-28
Camden, TN | Re: businesses tend to give discounts to customers who buy more said by ThrowDemsOut:To economists, it simply doesn’t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more. That is not true. The record is very mixed in that regard. Sure you get discounts when buying cereal; dog food; and other items at Sam's club and the like. But you pay more when you use more electricity; natural gas; water; and other goods considered to have limited supply. I put bandwidth in that category - it is a resource limited by the infrastructure and the increasing costs of trying to supply an unlimited amount. actually the more electricity I use the LOWER the kilowatt per hour they charge. At last in my area that's how it works. | |
| | | ThrowDemsOutIf you can't convince 'em, confuse 'emPremium
join:2002-03-03
Mullica Hill, NJ
kudos:4
2 edits | Re: businesses tend to give discounts to customers who buy more said by BF69:said by ThrowDemsOut:To economists, it simply doesn’t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more. That is not true. The record is very mixed in that regard. Sure you get discounts when buying cereal; dog food; and other items at Sam's club and the like. But you pay more when you use more electricity; natural gas; water; and other goods considered to have limited supply. I put bandwidth in that category - it is a resource limited by the infrastructure and the increasing costs of trying to supply an unlimited amount. actually the more electricity I use the LOWER the kilowatt per hour they charge. At last in my area that's how it works. In my area, during winter it is all the same price/kwh. But in summer, when demand due to air conditioning is high, and there are worries about brownouts and sufficient supply, the cost goes up after 500 kwh are used.
Your being in the old TVA area and electricity being generated by water power, I suspect that shortages of electric supply are minimal. My area uses a lot of coal, oil and gas powered plants in the summer to supplement power supplied by nuclear power plants.
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| | | | Re: Remember Regan's Speech. ding ding ding
we have a winner | |
| | | | | iansltx
join:2007-02-19
Golden, CO
kudos:2 Reviews:
·Comcast
 ·Verizon Online DSL
| Re: Remember Regan's Speech. Heck, you can get unlimited-use prepaid on Verizon. $40 per month too.
»pagepluscellular.com
Folks complaining about high pricing are ones who want to do everything with their phone, then want the carrier to give away that phone. They gotta make back the subsidy somewhere. | |
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| DaveDudeNo Fear
join:1999-09-01
New Jersey
kudos:1 | Well over-regulation brought us to where we are today. Forcing banks to make very high risk loans. Which caused the economic downturn... What innovations have come from Cuban , Venezuela , or any other Communist country ? waiting.. | |
| | | | | Re: Remember Regan's Speech. said by DaveDude:Well over-regulation brought us to where we are today. Forcing banks to make very high risk loans. Which caused the economic downturn... What innovations have come from Cuban , Venezuela , or any other Communist country ? waiting.. Since the only options are full regulation and no regulation, right? | |
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| elray
join:2000-12-16
Santa Monica, CA Reviews:
·SONIC.NET
·RoadRunner Cable
| said by Mr Matt:Regan is the father of misleading pricing. I am going to eliminate all regulation (So that big business can F*&K consumers). Regan's policies were at the bottom or our economic melt down. Is it not amazing how the digital age came at the same time Regan was in office and there was no protection for consumers for new digital services. His hands off policies brought us shrink wrapped contracts and below line pricing for new services. Economists should not be surprised that Regan-ism is the foundation of the current pricing models. Regan was the Secretary of the Treasury, not an office, but a post. I presume you mean Reagan, which is commonly pronounced "Ray Gun".
Big business doesn't "f" customers. You don't HAVE to be a customer, and typically, there is a competitive option, and if not, a company that is "f"ing its customers will soon find someone else is willing to do it for less.
Reagan's Star Wars begot us the DSP chips that make all of today's communication technology possible - DSL, Cable Internet, VOIP, cellphones - at dirt-cheap rates.
When he was in office, we were still paying $10 an hour or more for online services at 1200bps, and there was virtually no digital phone options. Cellphone service in 1984? $3K for the phone, $45.00/month and $.45 per minute plus LD.
Do you really think those rates would have come down to free phones, unlimited service for $30 without massive capital injections from investors?
Today's pricing models continue to deliver more service for less money. If you're spending more, it is because you choose to, not because "Big Business" is "f" ing you. | |
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1 edit | Put simply The cellphone companies wanted to avoid the sort of price wars that occurred a decade earlier in the long-distance market. So they decided to compete by offering distinctive goodies that cost little, yet had a lot of customer appeal.
This is annoyingly apparent in so many industries when competitors offer disparate options or terms to hinder value comparisons. No surprise that industries resist the commoditization of their products.
The risk adversity point was astute. Expect consumers to make an uneconomic decision based on an emotional appeal.
PUT simply, all a phone company wants is to get as much money as possible each month from its customers. Then it hopes that this total is more than its costs. I doubt the WSJ would bother point out the misperception that there is a relationship between price and cost to its subscribers. | |
| | | Riight I suppose that economist never saw European cell phone plans.
Where you have N plans with different per-minute cost, additional modifiers that may cost N euros a month and provide discount for calls on specific type of destination numbers (say, your calls to other providers' mobiles will become 25% cheaper than without a modifier), cost varies per minute (depending on plan, first minute can be 3x expensive, the next 2 cheap, third is free, and fourth and more is at yet another price) and there are accumulators and bonus points.
Prepaid plans in US are much easier. And contract plans are too. No advanced math required to figure out what you should get (take average number of minutes, multiply by cost per minute, compare with contract package deal)
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| | | | Re: Riight said by bugabuga:I suppose that economist never saw European cell phone plans. Where you have N plans with different per-minute cost, additional modifiers that may cost N euros a month and provide discount for calls on specific type of destination numbers (say, your calls to other providers' mobiles will become 25% cheaper than without a modifier), cost varies per minute (depending on plan, first minute can be 3x expensive, the next 2 cheap, third is free, and fourth and more is at yet another price) and there are accumulators and bonus points. Prepaid plans in US are much easier. And contract plans are too. No advanced math required to figure out what you should get (take average number of minutes, multiply by cost per minute, compare with contract package deal) Yep. And then you get to deal with all the rate unique prefixes that affect all callers, regardless of whether they are originating from a land line or cell line. | |
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| | Cash cow. What is not being said here, is that wireline companies treat their cell biz as a reliable cash cow, thus the outrageous fees, murky reasoning for such, and tightwad csr's that would rather prod you with hot pokers than show sympathy, even humanity. I stick with AT&T personaly because they seem to have minimal torture experts & more personable csr's. Would I ever get uverse if available to save $? No. But I would never subject myself to vzw's torquemada-esque csr's just because I may get all wireline services from them.
- A
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LETS GO METS! | |
| | | Telco's understand! Kind of a strange article. Telco's DO understand how much it costs to carry a specific call from point A to point B. It's a simple science actually. There's definitely a lot of human psychology considered, but at the end of the day it's pretty simple. Carriers want you to pay more to get more, and hopefully not use all of it. And if you do, that's ok b/c on avg they'll still be ok. However, if you use it too much, their profit is squeezed and often eliminated.
Bottom line is that this is why prepaid has become more and more popular amongst the mainstream. Keep it simple and charge me a fair price; with that everyone wins. Consumers are getting more savvy and dissecting these weird tactics, and the smart carriers have started to offer transparency, particularly with prepaid, but even that has a ways to go!
»www.prepaid-wireless-guide.com | |
| axus
join:2001-06-18
Washington, DC Reviews:
·Verizon Online DSL
| Total money spent for the year One point I was surprised to read, was that Europeans have a very open pricing model without all the restrictions that we find in the US, but they end up spending more money. I think the way we do things in the US makes people cautious. It probably also means fewer, larger companies that individually make more even if the industry as a whole makes less. | |
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Remember Regan's Speech.
tiger72: Please send an e-mail to Spell Check and criticize it for not giving me a choice between Regan and Reagan. 
