Family Plans are Best – For Shareholders

by Colin Berkshire

Remember when carriers charged for what you used?

Both Verizon and AT&T are expected to announce shared data plans shortly. Heralded as a boon for consumers, careful thought reveals it is more of a boondoggle. Shared use plans allow you to buy a block of data and then use that block across all of your devices. What’s wrong with that, right?

Shared or family plans are based upon the business model of forcing you to purchase a data plan that is way too big, and then having to use up the super-sized block by sharing it with all of your other devices. The benefit for the carriers is that you get locked into a single carrier.

But think about it: the going rate for 3G data is about $10 per gigabyte. If you decompose the carrier rate structures this is the underlying price you are paying for your base use and generally for overage.

If the carriers would just charge you $10 per gigabyte there would be no need for a shared use “family type” plan. You would just buy what you need for each device. That’s too simple for the carriers.

Instead, AT&T charges you $30 for 3 gigabytes. If you have an iPad, you probably need 1 Gigabyte a month. But you cannot buy 1 Gigabyte, you are forced to buy 3 Gigabytes.

The carriers fully understand the art of offering something you can’t use and touting it as a benefit. Originally, AT&T charged $20 for unlimited data on the iPad. Then, they raised their price to $25 and gave you 2 Gigabytes, knowing you only needed 1 Gigabyte. Recently, they “added” a Gigabyte and made the minimum practical program $30 for 3 Gigabytes. But you still only need 1 Gigabyte…and they know it. Selling you a 3rd Gigabyte for an extra $5 per month is disingenuous since they know you can’t consume it if your usage is at all normal. It was a price increase, plain and simple.

That brings up the other game carriers are playing: capping the few heavy users while never mentioning that there are a whole lot of light users getting ripped off. We endlessly hear about the top 5% of users that the carriers feel are consuming too much of their service. Usage is a bell curve…there are also that 5% of users who hardly use their service at all. Perhaps, it is when you go on that business trip out of the country, or perhaps during your month off, or perhaps you are one of the many who really just does email on your device. You may consume just a couple of hundred megabytes in that occasional low-use month. If you have two low-weeks a year you have become one of the 5% that are under-users. The carriers just do not want to talk about giving you a break when you don’t need their service. Yes, two weeks of limited use a year puts you in the 5% under-users…and there are a lot of us.

It seems only fair that if the carriers want to cap the top 5% users they should automatically reduce or cap their fees on the 5% under-users. But American carriers are not about “fair.”

The is no better example of this one sided heavy handed view of the carriers than the AT&T unlimited data plans (which are grandfathered.) AT&T has over the past two years gradually applied throttling caps to unlimited users, and those caps have steadily declined to where in some markets they kick in at about 2 Gigabytes. Unlimited data plans are not only limited, but are a worse buy than the pay-as-you-go plans. Remember: they get to change the rules, you do not. Once upon a time that might have been called “Bait and Switch.”

There is a remarkably simple and transparent solution: if carriers just charged a simple $10 per gigabyte for data there would be no need for games. Heavy users would pay a fair price. Under-users would pay a fair price. And surprise: there would be no need for a family plan since each device would be paying for just the data consumed. Carriers might even encourage you to turn on the tethering option so that you would consume more of their services.

$10 a Gigabyte is a fair and honest price. As a consumer aren’t you tired of “sneaky” pricing?