Tuesday, April 25, 2006

The Undercover Economist looks at how phone plans are hard to understand

Why are cell-phone plans so confusing? asks Tim Harford over at Slate.

First off let me say that I read Tim Harford every week in the FT, and as with Freekanomics I think that he does a great job explaining economics to the lay man.

Is this article he has done a great job explain how the Phone companies are using price to confuse the customer in over paying. It is this fact that has enabled Carphone Warehouse to become so powerful. Just last month my niece said that because she was at the end of her contract and trying to fond the best price had given her a headache she went into an independent phone shop and the "nice man" had changed her network to another cheaper carrier and "upgraded" her handset to the new Fashion phone from Nokia. I then spent twenty minutes explaining that the tariff she was on was not the best for her but was the best for the SALESMAN becuase he was paid a healthy bonus for every one sold. After we had spoken she used the cooling off period to cancel the new contract and phoned her existing supplier who was happy to change her price plan and send her the Fashion phone.

My issue with Tim, is that he does not understand the history of the mobile industry and that most networks do not have a single simple billing engine. It is the fact that networks have a number of billing systems used for Consumer, Small Business, Corporate and Enterprise that means that price plans are so complex. He also has to remember that the price has to include interconect fees due to the owers of other networks hence on and off network rates. Thus what should be a simple task, giving me the best price possible is complex. I agree that it should be easier and I also agree that at times we are taken for a ride by the Networks. But hey here in the UK if you want the best price for Gas and Electric you don't buy them from a company that used to sell them when they were a state monopoly.

I come back to my assumption that the Mobile industry needs something akin to the Y2K bug that allows all legacy systems to be scraped and a new billing system installed. But at present with the focus on keeping the cap on OPEX that will not be something undertaken by internal decision makers.

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