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
    Anne, 26 Feb 2008 @ 6:16pm

    T-Mobile Yea - Verizon Will Try To Suck You Dry

    I have an unlimited data plan through T-Mobile for $49.99 a month with my PDA. Mobile phone service (400 anytime mins, nites and weekends free) is about the same price per month from Verizon. I needed a PDA for work that wouldn't be interrupted or the battery life drained by incoming/outgoing phone calls, and at the time, T-Mobile was the only company that had an unlimited data plan that met my needs.

    What I've noticed is that Verizon is scratching and grasping at every last dime. Through my T-Mobile, I can access Google Maps for free, turning my almost 3 year old PDA into a GPS-enabled device. Verizon wants an extra $5 a month if I sign up for GPS mapping services through them.They also charge per megabyte if you want to use the internet on your cell phone.

    Verizon also attempts to charge a sucker's fee for all kinds of optional services. I wouldn't mind paying for a single ringtone, but instead of letting me cough up the .99 cents for the stupid thing, they want to charge me the .99 cent fee PLUS a monthly subscription fee, PLUS an annual fee to renew the ringtone after 12 months.

    Now, I haven't been able to discern yet how to hack the phone in order to upload my own ringtone, but I'm still trying. It's the principle of the thing, and once this Verizon contract is up I won't renew it, because I find this nickel and diming crap to be very distasteful. If I wasn't an experienced techie, I can also see where it would be very easy to accidentally sign up for some extra service on your Verizon cell phone.

    T-Mobile has none of these little sucker tricks. Their pricing structure is clear with no bullshit.

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
Insider Shop - Show Your Support!

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

Email This

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