I hate cell phone plans and "predict the future" business models

I hate the business model of cell phone plans, which is the same one used by parking meters and any system that requires you to buy credits to use it (like iStockPhoto).

I'm sure you've seen the stories. A teen texts 1000s of messages in a month which vastly exce eds the number on the plan, and the parents are stuck with a bill that would buy a nice used car.

The difference between paying $20 and $2000? The decision you have to make ahead of time on which text messaging plan you want. With AT&T, you get no free texts, $5 gets you 200, $15 = 1200, and $20 is unlimited. The same pattern goes for talk minutes and even data usage.

Wouldn't it be great if there was a cell phone plan where you actually paid for what you used, rather than what you think you might use with massive penalties for being wrong? What if they simply charged you the $20 for unlimited texting that month, instead of the $5?

Now of course we know why phone companies don't do that. Because they want people to pay for expensive plans that they don't really need except occasionally. But how about this for a more customer friendly model that still preserves most of the extra revenues: On the month that the customer exceeds their plan, bump them up to the next higher plan that covers their usage, then keep them on that more expensive plan for subsequent months. Customers could still switch back to the lower plan if they choose to. But as we know, most won't.

In the immortal words of Phil Haine, cell phone companies please steal this idea.

Comments

[Todd B.]

I see where you are coming from, Dave, but I also see the other side. Remember when cell phones, long distance, and Internet access was billed per minute? In that world, you felt like every second you were being metered, and you still had a huge bill when you use thousands of minutes.

Consumers are willing to pay a premium to not feel metered. Sprint tried a "Fair and Flexible" plan that automatically adjusted your recurring plan based on your usage (and overages were less severe), but I don't think it took off.

Yeah, it kinda sucks that the bad predictors end up paying more because of their predictions, and not their usage. There's definitely inefficiency there, but I think in most cases, predictions aren't THAT far off.

Let's say the breakage on these sorts of plans is 20%. There's lots of competition in the wireless market, and nothing stopping one of the companies from offering "per minute" plans without the prediction requirements. Of course, they'd have to charge 20% more per minute than the all you can eat plans (no breakage). Would consumers bite? I doubt it. Would you rather pay $15-$30 for unlimited wireless data or pay per byte transferred. With the unlimited plans, you pay a premium to know exactly what you'll have to pay at the end of the month. That's worth a lot to a lot of consumers.

[Dave Cortright]

I hear you, Todd. And I do agree the current model is generally better than being 100% metered. But the problem is you don't always know what you'll pay at the end of the month on months of heavy usage. Maybe what I'm really complaining about is the steep cost of underestimating.

For metered parking, you pay $3/hour, but if you underestimate your usage, instead of simply making up the difference, you now have a $60 fine to deal with. Similar with cell phone plans. Your per/minute cost on your base plan is a fraction of what those minutes cost if you go over. I just want the overage usage to be a bit more consumer-friendly.