What’s wrong with Telco pricing and how to fix it

Via the tidbits newsgroup an Aussie (amacbell) succinctly points out the problem with Telco pricing:

I know of no other industry where you need to prepurchase on the basis of a best guestimate of the volume of units required for the month ahead.

If you guess wrong and don’t use all the units you bought then you lose your money. Tough.

Can you imagine the uproar that would ensue if petrol stations started selling fuel for your car ‘on a plan’. You would need to prepurchase say 150 litres a month, and if you use less you still have to pay the full price.

Let’s repeat that.

If you buy 100 minutes and use 50, then you have overpaid – by 50%.
If you buy 100 minutes and use 500 then you will be billed at the much higher 100 minute rate.
Either way you have overpaid.

Some telcos will even charge penal rates. (Telecom’s XT price plan does not – well done)

So let’s use Telecom’s XT network’s pricing plan, which is a big improvement, to look at how we can get better.

Telephone calls

Right now you need to select a plan based on your guestimate of what you will do.

But why not have one rate – and provide discounts for use based on what I actually use that month? Why not offer the ‘best price’ each month.

So if one month I use 500 minutes I pay 30 cents a minute, and the next month when I use just  30 minutes I pay 60 cents a call. Make it the same deal for everyone, and that way we don’t have to think – and not making your customers think is a great way to sell them more stuff.

Same with SMS – XT’s rates vary from 20 cents on prepay, and 4 cents to 1.2 cents on contract, but you need to predict what you will do. Why not just charge at the best rate for the use that month?

Let’s turn to the real problem – data. Oh data.

Data ranges on XT’s pricing scheme from $300 per GB to $75 per GB. These are insane compared with regular broadband – and I mean it’s insane.

Meanwhile I have no idea how much data I use via XT’s network (I don’t see any warning texts – should I?), which makes this next bit scary.

The penalty rates for going over your data limit are criminal, and I use that word with purpose. There isn’t anyone that would deliberately go over their data limit (or extended data limit) and choose to pay, wait for it, $1,000 per gigabyte of data.

Go check – it’s on that same XT pricing plan, though they quote in megabytes. Megabytes – remember them? They were big back in the days of black floppy disks in 1995, but trivial in the days of 16 GB thumb drives and memory sticks, 5 Mb photos and a >1 Mb Stuff.co.nz home page.

Please Telecom (and Vodafone), and I say this with urgency – please fix your data rates so that using data is fun and not liable to end in penury.

There is plenty of room for improvement. Are you out there 2degrees?

Published by Lance Wiggs


8 replies on “What’s wrong with Telco pricing and how to fix it”

  1. Come on Lance… It’s not like pre-buying petrol it’s the Road we’re talking about here! (even a SuperHighway…)

    The issue is that when we all get our cars (or iPhones and Macbooks) out they all need to fit at the same time.

    What’s worse is that there are a couple of roads that go to the same place so lots of money has to be spent on getting you to drive on the ‘best’ road. This is called Marketing! What’s worse now is that there are new companies that make you think you are driving on a different road when in fact they are using someone else’s and you are just paying for marketing and billing…



    1. Q Nice analogy.

      What I am saying is that you make the pricing plan for the road users easier to understand. If I drive a lot of miles then I get a cheaper per mile rate – end of story. I don’t have to estimate how many miles I will drive next month, or, worse, 11 months from now

      Telco’s should be much better at estimating the total miles driven each month as an aggregate than we are as individuals. I would hope that they ignore the customer plan numbers and look to historic data and internal calculations for estimating aggregate demand.

      So why are they placing the burden on us for the estimation?


  2. If you are travelling (roaming) the data rate varies from $10,000 to $30,000 per Gb on Vodafone. There may be some data out there that represents equivalent value to me, but I have yet to come across it.


  3. I suspect that if you confronted Vodafone or Telecom with this blog post and asked them ‘why?’ they wouldn’t be able to come up with a satisfactory response. I imagine them just shrugging their shoulders and saying “because that’s how it’s always been done.”

    Will 2Degrees save us with sensible pricing plans? I hope so, but I’ll believe it when I see it… They’ll get my business if they offer a decent data plan.


  4. The old Flexi plan did pretty much what you are asking for minutes. alas it does not exist under XT.

    The reality is though, that for most people, they do tend to use very similar amounts of minutes each month. check your bills for the last 2 years. With a few exceptions for people who have particularly unusual phone bills, most people will find that every bill is within about 10% of the average.

    I do agree with one part though – data overage charges are ridiculous. However if you are using more than 3GB a month of data, then you should really consider getting a landline and using that instead to download your pornorgraphy and warez :D


  5. I would have assumed people would tend to use more if they knew they would get a better rate once the cross the next threshold. ( of course having a billing system that could provide the information so you can decide is another question )

    I think the only reason usage is consistent is billing was consistent and you effectively had penalties for over use


  6. I seem to remember Theresa Gattung boasting something along the lines of: Telecom had deliberately opaque charging structures as a way of bamboozling customers and maximising profits.

    My initial reaction to this was the first telco to introduce truly transparent and understandable pricing would have a major competitive advantage.

    This still would be the case today…


  7. This doesn’t even take into account the high MTRs telcos charge each other that I keep hearing about. Surely this keeps prices artificially inflated?


Comments are closed.