Budgeting, Planning & Forecasting

Budgeting, Planning & Forecasting

March 08, 2011

Overages Not an Issue for 99.7 Percent of Mobile Users

The Federal Communications Commission believes 30 million American consumers a year have experienced a sudden increase in their bill that occurred even when they had not changed their calling or texting plan. The danger of incurring such "overage" charges are a primary driver of subscriber purchasing of usage plans that offer cost predictability.

But data collected by the Nielsen Company suggests that while 13.5 percent of consumer accounts go into overage at least once a year, 95 percent of consumers who actually face overage charges each year are better off keeping their less-expensive plans and paying the overage charges when they occur, argues Roger Entner, Recon Analytics fouinder. 

The Nielsen Study data show that 6.5 percent of voice accounts went into overage once, and 3.3 percent of such accounts went into overage twice in the year-long period observed. The typical overage for each segment was $17.89 and $20.93, respectively. This generally represents about one-third of their normal monthly bill.

About 1.6 percent of users that encountered an overage once, and 0.8 percent of those who encountered an overage twice, had overages that were in the magnitude of their wireless bill. These voice overages were $42.40 and $43.43 respectively, compared to the average phone bill of about $59.25 including taxes and fees, Entner notes. 

The Nielsen Study also indicates that users in the 95th percentile of overage charges who exceed their limits once (0.32 percent of accounts) or twice (0.16 percent) is $101.62 and $92.48, respectively. Most people might consider those overage charges to be "shocking." They happen, but they are rare. 

The Nielsen data also show that in the course of a year, 86.5 percent of accounts never have a voice overage and 82 percent never have a data overage. The implication is that U.S. consumers save between $882 million and $2.4 billion every year by purchasing plans that might occasionally result in overage payments. 

"About 3.6 percent of the accounts that exceed their voice plan limits incur overages three times or more and up to twelve times in a year," Entner noted. "For accounts that repeatedly go into overage, it is reasonable to infer that it is a matter of consumer choice."

"Clearly, some consumers are engaging in an express trade-off between paying the occasional overage charge and upgrading to a plan that would eliminate the overage but cost them more over the long run," Entner said. The math is pretty simple. A user that might once or twice a year incur an overage charge of $9 could upgrade to a bigger usage budget. At an additional $10 a month, the sunk costs grow $120 a year. At an additional $20 a month, the sunk cost grows $240 a year. The point is that is "irrational" to pay $120 or $240 to buy protection from a $9 charge once or twice a year. 

Although more Americans exceed their data plan limits than their voice plan limits, the amounts of the data overage charges are typically less significant than those for voice overages. In total, about 18 percent of accounts incurred data overages during the year-long period studied by Nielsen. The median charge for accounts going into data overage once or twice in a year was $2.00 and $3.85, respectively. The median overage charge increased to $7.73 for customers with nine overage incidents in a year, but then dropped to $6.14 for consumers that incurred overages every month.

The analysis shows that U.S. consumers make sophisticated economic decisions that benefit them fiscally, said Entner. "As counterintuitive it may be for an outside observer, there are many cases in which it makes financial sense for a customer to go into overage once, twice, five, and even ten or twelve times in a year," he said. "Some customers value predictability over the lowest possible cost, others strategically match a low rate plan with calculated overages to achieve additional savings."

These users are not shocked by the overages; they planned to trade off lower recurring charges and occasionally incur a tolerable overage charge. "In fact, only 0.3 percent of wireless accounts go into overage during a year by such an amount that the customer would have been better off having upgraded their plan for that year," said Entner. "The other 99.7 percent of post-paid consumers are better off with their current price plans than they would have been had they chosen plans that would have eliminated their overages."

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Tammy Wolf

blog comments powered by Disqus