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We Don’t Need No Stinkin’ Bill Shock Rules. (Or Do We?)

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Unforeseen cell plan overages have resulted in a number of horror stories with some monthly bills topping out at $24,000 in additional phone fees. For that reason, the FCC last October introduced proposed “bill shock” regulations, conceptually similar to European initiatives already in place. Given the number of operators and regions in Europe, potentially expensive network roaming is common, so such regulations make sense. Based on empirical analysis from Recon Analytics, however, the U.S. doesn’t need “bill shock” rules because price plans already offer enough flexibility and provide for built-in overages.

The full PDF white paper with data is here, but this excerpt offers a solid summary:

American consumers save between $882 million and $2.4 billion per year by creating personalized price plans that combine set monthly fees with “planned” overages. In addition, wireless operators provide credits to customers who incur overages far more often than they do for customers that stay within their monthly limits, further reducing the impact of overages and increasing the incentive to use overages to reduce overall annual cost. Nor does domestic and international roaming or international calling contribute to overages on more than a negligible basis.

In other words, this analysis demonstrates that current rate plan structures result in consumers saving hundreds of millions of dollars each year by custom-tailoring plans to their usage. If the FCC prescribes a one-size fits all approach to customer notifications, it is likely to have the unintended consequence of reducing choice, flexibility, and consumer savings.

To determine overage impacts, Recon Analytics sifted through 78,633 actual post-paid accounts used by a Nielson study from the third quarter of 2009 to the end of the second quarter 2010. Some of the key data points that support Recon’s thesis include:

  • 6.5 percent of voice accounts went into overage once, while 3.3 percent of such accounts went into overage twice resulting in typical overages of $17.89 and $20.93 respectively.
  • Of these, only the 75th percentile saw overages that rivaled a full monthly bill, with overage fees approaching $43.43.
  • The 95th percentile of customers that went into overage saw a monthly add near $101.62.

With only the top five percent of those customers that actually go into an overage area, Recon figures that “less than half a percent of all post-paid customers encounters a charge so high it could be called ? shocking.” The historical math makes sense, but I’m not sold that it justifies ignoring the problem and here’s why: Bill shock is an experience that happens after the fact. Put another way: if a consumer gets an expectedly huge cellular bill, there’s little solace in saying to them: “Congrats, you really beat the 99.5 percent odds of this happening!”

Generally, I’m not big on legislating problems away, but I see little reason for carriers to not allow for proactive notifications when consumers approach monthly allowances. Some already do in terms of data: Apple’s iPad (s aapl) on AT&T’s (s t) network, for example, warns a customer when nearing the limit on their monthly data bucket. But without legislation — or an industry-wide, joint solution self-adopted by all carriers — there’s no consistency between operators. And it can often be difficult for consumers to readily find information on overage fees amidst the fine print of terms and conditions for cellular contracts.

Those against such legislation suggest the cost of a solution would be too great on carriers, but I beg to differ. Network operators know how much voice or data any given account has or is consuming, and it doesn’t cost anything to send a proactive text message. Indeed, there may be costs associated with developing a monitoring system for such a solution, but bear in mind we’re talking about an industry where the two largest U.S. carriers, Verizon (s vz) and AT&T, earned $33.9 billion in wireless operating income last year. They each have development dollars for creating software that brings in additional revenue with value-add services such as music streaming and navigation, so surely there’s money to develop a consumer friendly bill shock solution. And as Stacey pointed out last year, there are third-party companies that provide such a service if carriers want to purchase or outsource it.

And I’m not seeing the correlation that Recon Analytics places on bill shock rules with the potential for “reduced choice, flexibility, and consumer savings.” I’m not reading the FCC’s intentions in any way, shape or form to make changes to any existing or future cellular plans for data or voice. The intent is simply to educate consumers on the risk of a higher bill before it’s too late. Yes, there can always be unintended consequences of any new laws but a notification system shouldn’t have any impact on consumer plan choices; it should simply raise consumer awareness of the current and potential costs.

I suspect few, if any, of our tech-savvy readers have been shocked with a multi-thousand dollar overage, but I’m curious to hear thoughts nonetheless. For the mainstream consumer that’s not paying attention to roaming charges, voice minutes used or megabytes consumed, some type of bill shock notification solution simply makes sense to me. Am I in the minority on this one?

Related GigaOM Pro Content (sub req’d):

7 Responses to “We Don’t Need No Stinkin’ Bill Shock Rules. (Or Do We?)”

  1. rayabaron9999

    There is already a solution to “Bill Shock,” and it is available for all of the leading mobile platforms. I downloaded this app for my BlackBerry and my husband downloaded it for his iPhone. It tracks your voice, data, SMS and roaming usage in real-time. It is called Telicost-Lite, and it’s free. Check it out at blackberry app world, or itunes or on android market. It’s free- what is better than that???

  2. Jeff Hazel

    Great thoughts on the issue, but I think Kevin steps right into the counterargument in his comment about the FCC’s intentions; it’s the rare regulation that intends to stymie innovation or up costs for consumers, and the FCC no doubt means very well. But regulations often lay out frameworks that constrain the very creativity that naturally springs up to meet consumer demand. Imagine that the FCC’s bill shock rules require providers to issue alerts as text messages or voice mails; where does that leave the $10 Android app that Kevin covered just last week? Or tomorrow’s alert system running through Facebook or Twitter? Technology just outpaces policy–a point that telecom regulation has proved again and again. For more:

    • Hi Jeff,

      Writing from the other side of the pond and so not experiencing the “bill shock” stories stateside – but very much hearing the same complaints in the UK – it seems crazy anyone would argue against this legislation that manifestly benefits consumers who are, as Kevin correctly point out, often less well informed than any industry commentator. Although, with Kevin, I’d agree that all legislation is not good and some can indeed, as you say, “stymie innovation” – in this case the only innovation it stymies is in the networks’ price plans – ie. how do they increase their profit margin at the expense of a few and keep the many appeased. Let’s face it – they’re trying to get away with stinging a minority of clueless people – that’s not innovation, that’s exploitation.

      Your example of constrained creativity regards the SPB Wireless (which sounds like an awesome app even apart from its data limit monitoring capability), is meaningless as in this case the app is plugging a gap already left open by the networks – which would now be done for free, automatically and for all. Clearly consumers benefit more from this version than from paying $10 for an app. In addition, the article you linked to also riled me as it references Google and Facebook as being innovative because they are unregulated. While that may be true (at least in the States), it misses the point. Both those services are free to users and so there is less risk of them financially exploiting the customer, therefore there is less need for regulation (although, there are other risks of data exploitation which in fact are being regulated for in Europe). When they try and create services that do cost money to users, they’re regulated the same as everyone else.

      To anticipate one response I might receive to this comment – that “ignorance is no excuse” – I would say: By no means is it an excuse, you’re going to have to pay – but it’s a pretty shoddy basis for a business model as well! Any business that has to veil it’s charging model in such secrecy is not built with the customers’ best interests at heart. How much should those business practices be encouraged and is this kind of innovation something anyone would really want to champion?

  3. Why does the industry have to do ANYTHING. If they add a system, either legally required or voluntarily, they are bound to make that cost up somewhere, and that’s going to be my bill. In an Andy Roony, get-off-my-lawn sentiment, I need to know why we need a babysitter for that .5 percent? Every carrier has an option on phones (even feature phones) to check your minutes, and if you have a data plan, I’m going to assume you can figure out how to access your account information online to check where you are each month. I do, and I have an unlimited plan! The nanny mentality has to end. If you screw up, you screw up, and you suffer the consequences. There are more than enough tools in place without having to have notifications because people are too lazy to use those tools.

    • Totally fair point, and as someone who’s familiar with the industry, I’m not surprised by your reaction. But I’m willing to bet if you asked 10 of your friends or family (folks that aren’t following this industry, but are just average cellular consumers) how much would they pay for voice, roaming or data overages, few would have the answer. And fewer would know where to find it. In that case if (and I realize it’s a big if), they caused any overages it would be a shock.

      Should they have to pay overages in that example: yup. Because whether they knew in advance what the fees would be or not, it’s in their terms of service. I don’t think this should absolve them of that responsibility. But more information that the carriers readily have available would help in a situation like that.

      I realize that its a totally different problem, but let me relate a circumstance where I was “shocked”: our basement flooded a few years back and we lost about $10,000 worth of personal items, keepsakes and such, plus had some repair damage. Like any normal homeowner, I assumed my homeowners insurance would cover the issue. Surprise: it didn’t. I was never told that I would have needed a special “sump pump rider” and because our sump failed, which caused the flood, nothing was covered. Why? Because I was never made aware of this special, extra fee circumstance. Again, totally different, but conceptually, a simple notification at time of purchase would have changed the entire situation.

      • Michael G

        I agree with Cyndy – these are adults we’re talking about here – why all the babysitting? They’ve signed up for a plan with carrier and it is up to them to manage that account and ensure that they don’t go over. It’s not up to anyone else, especially the carriers.

        Kevin, of the family and friends you mentioned who don’t know the charges/where to find it, if they are the primary account holder who is responsible for the bill – they ought to know and if they don’t take the time to read up on this then it is their own fault.

        Just because a company has high operating income does not mean it has any obligation to develop a consumer friendly bill shock solution. That $ should be invested in the technology if anything.

        Also, in regards to the basement flood – there are always going to be loopholes in coverage/contracts. I don’t think it should be up to the providers to detail every little circumstance that may arise. It is very unfortunate that you weren’t covered in that circumstance, but again, if you had really grilled them with everything you could think of or asked them if there was anything else that may have been missing or that you could be liable for, this situation might have been avoided. And if they told you no when you asked them, you certainly would have a case here.

  4. Jack C

    Yep, I agree.

    The data suggests legislation isn’t needed in sort of the same way that data suggested consumers didn’t need protection from overdraft bank fees. The rationale that “it only happens to a small percentage of people” isn’t wholly compelling.

    As you suggest, industry can and still has many viable low/no-cost options for getting out ahead of and eliminating the need for legislation. They probably should have provided tools for the consumer to eliminate the risk of unintended overage from the get-go. However, as long as there is a monetary incentive to ignore the issue, it will remain as is, until external pressures (e.g., people lobbying for legislation, etc.) change the equation.