Price Comparisons Among Mobile Services

The matter of the CRTC's cancellation of their mobile service comparison calculator is still alive. As this more recent article states, if Oftel, the UK regulator, can produce a working and useful calculator, why not the CRTC? As I stated in an earlier post, I think little of this since this should not be a role played by the CRTC; they need to focus on promoting competitive options in the market and not get into this consumer issue. I also believe there's a conflict of interest with a politically-influenced government agency becoming deeply involved with a consumer tool that inherently must favour one or several of the businesses that they regulate.

In this article I want to make what I believe to be an important point about comparison calculators and service pricing. That will come towards the end. First let's look more closely at the subject of calculators and their limitations.

Much has also been made of the CRTC calculator's limitations -- lack of data plans, bundling discounts, phone subsidies, SMS, and various coverage and roaming nuances -- although all of these could be included without much difficulty. For example, if a phone comes for free with a 2-year contract and is $100 with a 1-year contract, then for the 1-year contract you can amortize the price over that period to arrive at a $8.50/mo. charge. For bundling, just plug in the companies you subscribe to for wired phone, broadband and TV, and the calculator figures out which bundles apply. The free calculator that received media coverage has similar limitations, and also suffers from many other problems, as I discovered when I played around with it. I will forgo a detailed review of that calculator by simply stating that I found it to be dreadful. However, it is being used (perhaps because there are no alternatives), and by using it I was able to refine my thoughts on why any such calculator is likely to have poor utility.

• The calculator asks you to provide detailed calling patterns by day, time, incoming vs. outgoing, local vs. toll, call duration and quantity, proportion of calls to popular numbers, and so forth. Try this experiment: fill in these fields of the calculator by mentally estimating all this detailed data. Afterward, go and look at the call details in your most recent few account statements. It is most probable that you got it wrong, and by a wide margin. Further, the variance in these measurements from month to month will be large. So what's the value of going to the bother of providing all of this detail?
• There is little indication of whether geographic coverage is adequate to your needs, what phone they will saddle you with, after-sales customer service quality, billing accuracy, and a thousand other important details. In other words, are you likely to sign up with a service provider you've never heard of (they always seem to be the cheapest!), that no one you know has heard of, and whose reputation is pretty much unknown to you?
• Tying is not explored. An example of this is smart phones: just try to get a smart phone (iPhone, Blackberry, etc.) from a carrier without a data plan. Let me explain why this class of tying is much more than a detail. One big purpose of tying is to get you to try services you would not otherwise select. Yes, you may not be paying extra for it, but most likely you eventually will. You now have a smart phone and you have a data plan, and you will undoubtedly use them, perhaps just a little at first, but over time you will be hooked. The same goes for SMS. At some point you will exceed your subscription limits of, say, 500 MB or 100 SMS per month, and you will be charged overage and, if you are really hooked, you'll then upgrade to a better data or SMS package for a higher price. This is like giving free cigarettes to teenagers -- many will become addicted and drive revenue growth. It is also why feature phones have always come with web access and SMS enabled: it's there, you try it, they charge an exorbitant fee, and you feel motivated to upgrade your service.

If you've read this far, you may very well be thinking that calculators are either useless or that a useful calculator would be pointless due to the vagaries of human nature and the rapidly evolving marketplace. I claim there is a good reason why this complexity exists and is unlikely to go away in the foreseeable future. It is that the service providers derive significant benefit from not only great complexity and optionality in their pricing models, but also in doing so in a way that each tries to be different from its competitors in arbitrary and unfathomable ways. They want to make it as difficult as possible for you to do price comparisons. Let's look at why this is.

Mobile services are inherently commodities, and devices like the iPhone are focused on the manufacturers, not the carriers which distribute them. All of the major carriers have similar geographic coverage and terrible customer service, so those are not differentiators. Commodities like wheat and copper have always been sold on price alone, and that is just what the carriers want to avoid, while consumers want exactly that. Making the price and price comparisons as opaque as possible allows service providers to compete on the quality of their marketing, not pricing, thus making it difficult for the market to perceive and purchase mobile service as a commodity.

That's it -- it's no more complex than that one final message. I hope this issue is now just a little bit clearer to you than it was before.