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Friday, April 15, 2011

Maybe mobile phone tariffs aren't a rip-off after all

Mark Bridge writes:

Oh, those nasty mobile networks. They’re robbing us blind… at least, that’s what you might think if you’ve been reading the headlines this week.

Mobile users 'overpaying by £200', said the BBC. £5bn 'wasted' on mobile phone bills, said the Financial Times. It's the wrong tariff, Gromit!, said Telecom TV after hitting the Wensleydale.

The stories were based on a report from mobile tariff price comparison website It calculated that 76% of UK mobile customers could be on a more cost-effective price plan, which meant mobile users were over-spending by an average of £194.71 each per year.

Tosh, I say. Many people are undoubtedly on inappropriate tariffs - but there are too many assumptions there.

Now, let me put my cards on the table. I used to work for a mobile network. And, as a freelance copywriter, I still work for mobile networks and mobile retailers. But I don’t think that invalidates my opinion any more than Billmonitor’s commercial activities invalidate theirs. So I’ll continue.

To start with, I’ll knock three-quarters of a billion quid off the total. The report says 19% of people on the ‘wrong contract’ have the right level of inclusive minutes but are either wasting money by not optimising free benefits, data and text allowances or other costs - or are missing out by not taking advantage of lower costs from longer contracts. So… if you signed an 18-month contract but could have got a better deal by committing to longer, you’re on the wrong tariff. Of course, if you’d signed a 24-month contract but your circumstances had changed, you’d be completely stuffed. That’s not something factored in to the calculations. Altogether, there’s a total of £740,000,000 that arguably isn’t really wasted at all. It’s no more ‘wasted’ than paying for insurance is wasted if you don’t claim.

What else isn’t in those calculations?  Not all network deals, such as discounts for specific numbers, are included. Fair usage allowances for ‘unlimited’ deals are missing too. And the Billmonitor calculator makes assumptions as well. However clever the maths, it can’t account for everything.

On top of all this, no-one seems to be admitting that customers are happy to pay for convenience. A ‘bundle’ of calls and texts isn’t merely a marketing ploy, it’s a consumer benefit. If you don’t want a call allowance, you don’t need to have one. In fact, you don’t even need to have a monthly mobile phone contract at all if you’d rather ‘pay as you go’.

Paying for convenience also sees us throwing away stale milk instead of keeping a cow - and not reading all of the Sunday paper because we don’t have time to do our own reporting.

Finally, I doubt that similar figures would have been given as much credence by the mainstream media if they'd been presented by spokespeople from other pricing comparison sites - such as Gio Gompario, Aleksandr Orlov or Omid Djalili.

Mobile network operators aren’t saints. But I don’t believe they’re con artists, either. That’s all I wanted to say, really.

Author: The Fonecast
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Categories: Networks and operators, OpinionNumber of views: 2641

Tags: opinion tariff

3 comments on article "Maybe mobile phone tariffs aren't a rip-off after all"


Nick Wright

4/18/2011 9:51 AM

Hi Mark,

Just wanted to respond on behalf of billmonitor to your comments on our report and service.

First of all, thank you! It's really great to have some spirited debate about our numbers - personally, I'm in favour of robustly challenging them so we can explain our own reasoning more clearly wher necessary and where possible.

Regarding your point on 24-month contracts - it's a shame in some ways that the best value is only available with a 2-year commitment period. However, economically-speaking, there's no denying that 24-month contracts are always much better deals than 18-month ones.

Also - what exactly do you mean by change of circumstances? If you use your phone more: all networks allow you to move up a tariff. If you use it less, and need fewer minutes/texts/data: you are just as restricted on 18-month contracts as on 24-month ones. The only situation where a change of circumstances might hurt you 24 mo. vs. 18 mo. is if you're forced to a) move abroad - thus meaning you pay an additional 6 months you no longer need or b) move to an area with low reception on the network you chose and can't switch for an additional 6 months. In both cases, the additional costs of a 24-month contract would represent the probability you believe either a) or b) will occur multiplied by the amount you'd stand to lose. In most cases though, we believe, this is rare.

We do factor in fair usage allowances - where explicitly stated by networks. In most cases, the assumptions you state would have the affect of INCREASING the wastage - as it means we are overestimating customers' true costs/underestimating savings on new contracts we recommend (ie. they may pay EVEN less with discounts to specific numbers). We're working on improving accuracy all the time but round up not down when estimating future costs, erring on the side of caution.

Unfortunately, I have to flatly disagree with your argument about convenience on contract deals being a rational reason for the waste. billmonitor builds in significant probabilisitic error margins when calculating customers' ideal tariff allowance levels. While I agree that customers on post-pay prefer convenience over exact metering - our wider point is that customers go WAY too far in overestimating their monthly usage, to the extent that they are wasting money. To reiterate: 13 million subscribers have 4 times too many minutes for their usage (ie. they use on average just a quarter of their allowance). Those who have a comfortable amount of minutes use on average half of their minutes. I would say that is still a decent margin for convenience.

To use your own metaphor: I agree, keeping a cow is not convenient. But the correct comparison would be buying a pint of milk a week and letting three quarters of it go rancid by the end of the week. Why not buy a half pint (or even a quarter pint)? Buying too much when less will do is by definition wasteful.

Finally, we never put the blame on networks per se. This is a complex space for customers with multiple variables. If networks simplified they may be reducing choice or flexibility, which is also not desirable. The correct solution is more guided decision-making using impartial expert advice, choice tools and crowd-sourced customer feedback.


The Fonecast

4/18/2011 9:49 AM

Thanks for your comments, Nick. I'm very happy to be proved wrong by the maths!


Nick Wright

4/18/2011 10:17 AM

You're welcome! Feel free to keep calling us out on our stats, if you're in any doubt. We prefer to operate in an environment of rigorous peer-review where possible as it keeps our own product and approach honest and open.

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