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 on AT&T’s 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 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?

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