Why The Wireless Industry Is Moving To Flat-Rate Pricing

from the lower-transaction-costs dept

One of the recurring trends in high-tech markets is that as information goods get cheaper, they're increasingly sold as all-you-can-eat bundles rather than as individual units. This has been true of land-line telephone service for decades. In the late 1990s, we saw the same transition occur in Internet access. In this decade, we've seen the explosive growth of Netflix, which is an all-you-can-eat plan for video. Now it appears that cell phone companies are inching in that direction too, as Mike discussed last week. For $99/month, Verizon Wireless, AT&T, and T-Mobile will let you talk on your cell phone as much as you want. Sprint is apparently considering adopting a similar plan. This isn't actually all that new.

There are two fundamental economic forces at work here. First, metering imposes costs, both on consumers and on carriers. For carriers, there are the obvious expenses of keeping track of billing information, as well as the attendant support costs when an angry customer calls to complain about unexpected charges. For the customer, metering imposes the mental overhead of having to keep track of whether it's currently "peak" or "off peak" time, how many minutes are in his plan, whether he's currently "roaming," etc. A lot of customers are happy to pay a little bit extra for the peace of mind of knowing exactly how much they're going to pay each month without having to keep track of their calling activity. Second, the wireless market, like the phone, Internet, and DVD markets, is capital-intensive. Unless the network is already fully loaded, the marginal user costs wireless carriers close to nothing. As a result, metered pricing often causes under-utilization of the network because minutes are priced far above their marginal cost. Switching to a flat-rate plan can be economically efficient because it encourages greater utilization of the network without undermining the carriers' ability to recover their fixed costs. That has always been the rationale behind the free night and weekend minutes offered by a lot of cell phone companies over the last few years. They're just expanding it so it applies 24/7.
Hide this

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: flat-rate, wireless
Companies: at&t, sprint, t-mobile, verizon wireless


Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. identicon
    Robfactory, 26 Feb 2008 @ 8:32pm

    Metro Piece of SH*T! aka Metro PCS

    Metro services major metropolitan areas.(like 7)
    They do not service all of the US. They relay on Sprint's older technology to run their service.
    So obviously it does not run on a GSM Network.
    Asides from getting hang up calls (which they have gotten better at), you are very limited to their network range.
    Mind you, they have a $40 all you can talk; however, their services are limited to (local calls) If you want text or long distance you have to pay extra.
    I remember when AT&T before cingular had a $99 all you can talk mobile plan. It will be good for certain people who spend all day on the phone.
    As far as T-Mobile, they usually have the best plans and the cheapests. I have a 3 line fam plan and I pay $10 for unlimited text and video text on all 3, not each.
    BTW here is a link of what Amazon is selling
    http://www.amazon.com/gp/feature.html/ref=amb_link_6375702_1?ie=UTF8&docId=1000200921&pf_r d_m=ATVPDKIKX0DER&pf_rd_s=center-4&pf_rd_r=09DA3ZMMA7JG1ZQRP8YA&pf_rd_t=101&pf_rd_p= 366619501&pf_rd_i=301185
    It compares all of the 3 major networks plan. T-Mobile throws in Messaging for free :-)

Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Remember name/email/url (set a cookie)

Follow Techdirt
Special Affiliate Offer

Essential Reading
Techdirt Insider Chat
Recent Stories

This site, like most other sites on the web, uses cookies. For more information, see our privacy policy. Got it
Close

Email This

This feature is only available to registered users. Register or sign in to use it.