Do cell phone plans make economic sense?

Here’s the deal. You’re going to pay $60 per month for cell phone service. You get 1,000 voice minutes for that price, which works out to six cents per minute. That’s a better deal than you’re going to get anywhere else. Just pay that $60 every month, and every month you’ll have 1,000 minutes. This is standard operating procedure in the cellular world, but that doesn’t mean it makes sense. In fact, cell phone service pricing baffles many economists. Sure, the setup works well for the carriers, but it’s a burden to consumers. The cell phone carriers have set everything up in their favor. They sometimes have justifications for this pricing scheme, but there are other times when the intent is clearly to get a larger, guaranteed sum from the consumer. In the end, that’s what it always comes down to. The problem with the $60 for 1,000 minutes plan is that consumer rarely use exactly 1,000 minutes. If they use fewer than that, the price per minute is more than 6 cents. If, say, the customer uses 800 minutes, the price rises to 7.5 cents per minute. That’s still relatively cheap, but not nearly the deal advertised. Don’t even think about going over your minutes, because that will only trigger overage fees, which can range up to 40 cents per minute. For 1,000 minute plans it’s often cheaper, around 25 cents per minute. That’s a problem for people who talk for 800 minutes per month. Many cell phone companies jump from 750 to 1,000, leaving the 800-minute people in limbo. They can choose to pay the $60 for 1,000 minutes, or they can take their changes with overages which, if assuming 50 overage minutes per month, can range from an extra $12.50 to $20. Most times, people will opt for more minutes, which makes cell phone companies extremely happy. That’s guaranteed income for them, and investors love guaranteed income. Then there is text messaging. Messages used to cost a nickel. Then a dime. Now they’re up to a quarter. Yet in the period when the prices increased, the cost to deliver a text message did not rise. Carriers hardly hid their intentions — they wanted people to sign up for unlimited text messaging plans, at $20 per month. Those are again guaranteed income. Carriers were satisfied even if a customer would get on a limited text messaging bundle, say, $10 for 500 messages. Anyone who sends and receives more than 40 text messages per month would benefit from this. This is all well known in the wireless industry, yet carriers get away with it. We, as consumers, have become used to it, so we continue along with the scheme. It’s not like there are any viable alternatives. Even so, consumers should at least know what they’re getting into. Maybe the carriers’ versions of postpaid cell plans work for some consumers, but for others it’s costing them more money than they need to spend.

About the Author

Joe Pawlikowski is the Senior Editor at MobileMoo.com and has been covering the mobile industry full time since 2007. When he's not writing about the tech scene, he can be found discussing his personal love - baseball (and more specifically the New York Yankees) as well as writing on his personal blog.