The Tangled Web of Mobile Pricing Plans

Hey, Fools, have you been watching your smartphone bills growing faster than kudzu and wondering if changing plans could slow down the money hemorrhaging?

Of course you have. So why haven't you done it?

Because trying to figure out what the best plan would be out of the hundreds of confusing plan permutations from the major mobile carriers is enough to make your head explode.

And that's the way those carriers want it. The less information you, as a consumer, have, the better the likelihood you'll stick with your current cellular provider.

If you could simply plug in your voice, text, and data needs to come up with the best cost per service plan from each carrier, then comparison-shopping would be so much easier.

Boston College economics professor Michael Grubb told The Wall Street Journal: "If it really was just one number for consumers to compare, no one would ever voluntarily pay the higher price. But when there is a number of gigabytes, the overage charge, the monthly fee, and a little bit of math to do, suddenly it is not so easy to pick the contract that is a better value."

Though you still would have to factor in each network's coverage area, data speed, and voice quality, removing that Rubik's Cube of plan choices would, at least, reveal the best plan you think you need at the best price.

I say "think you need" because, as an MIT paper on cell phone usage written by Grubb, along with co-author Matthew Osborne, states that "consumers are uncertain about their own average taste for usage when first choosing a calling plan, which leads to frequent ex post plan choice mistakes."

In other words, consumers use more minutes than they originally bargained for and incur overage charges. And then, the paper continues, "... consumers learn about their own tastes over time and switch plans in response," but they will again err in choosing a good plan because of "information held by a carrier."

That is, the carriers will be one step ahead of the consumer and will change the plans parameters, negating any real cost savings.

AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) , the two largest U.S. wireless carriers, are also the most expensive, though they do offer the broadest national coverage and have the largest 4G networks. They're also the most competitive, so their rates -- for shared data rate plans, at least – are neck and neck.

Verizon Wireless' Share Everything plan for four smartphones plus 4GB of shareable data, with unlimited talk and text, will cost $230 per month (not including taxes and surcharges).

AT&T's Mobile Share plan for the same thing would also cost $230 per month -- but, oddly, so would the 2GB and the 6GB plans. If I went for the AT&T family plan with the same options, but with 3GB of unshared data per line, it would cost $290 per month. With only 300MB unshared data per line, the cost would be $240.

Sprint's (NYSE: S  ) Unlimited, My Way plan with the same options but with unlimited data for each line would cost $260 per month, and for 1GB per line the cost would be $220.

T-Mobile US (NYSE: TMUS  ) has differentiated itself by only offering month-to-month contracts and not subsidizing their phones in return for a long-term commitment.

The "Un-Carrier," as T-Mobile characterizes itself these days, offers its Family plan with 2GB per line for $140 per month. But the customer will have to pay full price for a smartphone, which, for an iPhone 5, is $648 -- or an additional $27 a month for 24 months for each iPhone, adding $108 to the monthly bill.

Of course, the subsidized cost for four iPhone 5s at the other three carriers would be $800. So taking that into consideration, the total cost for two years of iPhone 5 service at AT&T and Verizon come out to $6,320, compared with $6,000 at Sprint, and $5,932 at T-Mobile.

I was thinking about changing my plan, but now I'm not too sure. I think I'll put it off for a while, hopefully until all the carriers will offer the exact same services. But I think that's not going to happen anytime soon. Keeping the customer off balance is the name of the mobile-carrier game.

Why does the iPhone 5 seem to be the most common smartphone mentioned in articles about mobile operators? That's because Apple has a history of cranking out revolutionary products, and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.


Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 04, 2013, at 8:59 PM, hiddenwindowsol wrote:

    If someone is truly serious about figuring out what mobile phone plans are the best for the money one is remiss not to include MVNOs like Virgin(owned by Sprint), Aio(owned by ATT), Ultra mobile ( a T-Mobile MVNO) or any number of others.

    MVNOs offer the best service for the money, from personal experience at least, simply because you pay less ( my monthly mobile bill breaks down to about $1.29 per day or $35 per month pre-tax).and aren't bogged down in a pointless contract. Yeah some of the CDMA carrier MVNO phones suck I admit but if you are using a GSM MVNO then you can take any unlocked GSM device to the MVNO ( I use an imported OPPo find 5). But these are just my 2 cents.

  • Report this Comment On August 05, 2013, at 1:35 AM, cameronwo1 wrote:

    Love to know if you checked online before publishing this sentence and what we could have done to impress you?

    "If you could simply plug in your voice, text, and data needs to come up with the best cost per service plan from each carrier, then comparison-shopping would be so much easier."

    We built an engine to do this for all phones in the US: www.whistleout.com/CellPhones

    We're doing something wrong if we have not been able to impress you!

  • Report this Comment On August 05, 2013, at 10:27 AM, XMFDRadovsky wrote:

    cameronwo1,

    I checked out your site, but I couldn't see any way of plugging in the number of different lines for a family type of plan.

    Dan

  • Report this Comment On August 05, 2013, at 8:17 PM, cameronwo1 wrote:

    Hi Dan,

    Ok, fair point!

    We're building the multi-line family plan comparison at the moment. Hopefully it'll be done soon.

    Cameron

  • Report this Comment On August 06, 2013, at 9:50 AM, XMFDRadovsky wrote:

    Cameron,

    Please let me know when it's up and running, and I'll take another look.

    Dan

  • Report this Comment On August 07, 2013, at 3:34 PM, NicoleSantiago wrote:

    GIV Mobile is a no-contract wireless service plan that is not only affordable but socially conscious. GIV’s “Unlimited Everything” plans start as low as $40/month for talk, text and data and 8% of a customer’s monthly bill is dedicated to a nonprofit charity. The customer is able to choose from a variety of charities that GIV Mobile supports. Some of these include Feeding America, Mercy Housing and Little Kids Rock. GIV Mobile also utilizes the 4G network of T-Mobile USA, Inc., allow for fast, reliable connection all over the U.S.

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