Cell Phones Plans: Cutting Corners & Saving Money

Nothing will melt your mind like shopping for a new cell phone contract. Base rates, data packages, & overage fees – oh my! The perfect plan never exists. And the idiots that work at the cell phone stores (with their pre-packaged shirt/tie combinations..ehh!) are never around long enough to provide any stability or accountability.

The New York Times recently embarked on an analysis of cell phone plans. In no real surprise, they needed a Yale Economics Professor to help sort through the details. But in the end, even he was confused.

“The whole pricing thing is weird,” said Barry Nalebuff, an economics professor at the Yale School of Management. “You pay $60 to make your first phone call. Your next 1,000 minutes are free. Then the minute after that costs 35 cents.”

To economists, it simply doesn’t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more.

So why is the cell phone industry so counter common logic?

Those high charges for going over your allotted minutes, for example, are designed to cause you enough pain that you will switch to a plan with a higher regular fee.

“You give people a really good bargain on this bucket of minutes,” explained Roger Entner, a senior vice president for telecommunications research at Nielsen. “People are risk averse, so you have a relatively high overage charge, which gets people to overbuy. You also get really predictable revenue out of it, which Wall Street loves.”

Some Examples of other cell phone pricing that flies in the face of common sense”

• When Apple and AT&T started offering the iPhone for $199, plus $30 a month for Internet access, sales shot up, even though the previous deal — $399 for the phone and $20 a month — cost less over a two-year contract.
• Phone companies have doubled the price for text messages, to 20 cents each, in recent years, even though they cost almost nothing to deliver.
• When companies introduce certain discounts — like Sprint’s recent offer of free calling to any mobile number — the effect is that customers often switch to more expensive plans.

So what does this mean to us? We can save bunches of money (in the long term) by assuming the risk of the overage fees. By chancing our usage and monitoring our progress, we can reduce the cost of our plans.

This is easier today than ever. Most phone companies provide an avenue to monitor your usage via text. Additionally, if you have online access to your account, you can easily monitor your usage there.

Audit your cell phone account. See if their are any corners you can cut?

via Looking for a Method in Cellphone Price Madness – NYTimes.com.