Tariffs being sold with data as the prime and why phone subsidies are bad for you

Posted on January 12, 2013

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I see that t-Mobile USA have announced a couple of interesting things in the last few days.

Firstly that they have a new tariff for $70 that is all you can eat data (unlimited for all intents)

and bundled with that is unlimited voice and SMS (test) as well.

Seems like a turn around that Data is the thing they are selling at the forefront …

but also it is all unlimited.  So if you are not paying on a per Mb or per minute or per SMS, then you don’t need to rate these in real time,  thus you can bypass a lot of expenditure from the core network.

[in case your wondering “rating” is where you work out the cost, for this particular user, at this particular time, for this particular call/text/data stream, what the cost is.
This is expensive for two reasons
a: you have to do it in real time and
b: there are so many different tariffs n use across the network,  a figure of thousands is not uncommon.

and why do you need it in real time,  well if the user is about to run out of money (eg pre-paid) then you are going to want to stop the call or the data usage when they do.

and real time is expensive because it requires specialist operating systems and computer languages (eg Erlang) rather tan your common all garden Java or C/C++.  And these skills are expensive, testing is expensive and so on.

Thus if the operator is brave enough to put users on all unlimited,  then billing the customer becomes an off line reporting type problem,  and not a real time rating type problem,  and this is means considerably less money and complexity.  Which can lead to greater profits (good for your pension) or lower tariffs (good for your wallet) either way its all good.

The other thing to catch my eye regarding T-Mobile is that they will drop device subsidies.  Which at first sight seems like bad news for the consumer,  but actually it’s not, over the term of the contract.
The subsidy is there to reduce the cost of the device when you first get it.  The operator gives you a discount on the price of the device,  and then adds the value of this discount back into your monthly tariff, plus interest and other costs.  Thus you pay more.  So if you look at a the total cost of a contract with a subsidy and without, the without is cheaper,  and normally this also means you are not locked into this device for the contract because you can get so called SIM only deals where you can move from device to device as you see fit.
The downside of course is that you have to have the cash up front for the device,  and this can be a BIG downside,  don’t get me wrong.

The other side of the coin is that it will change the relationship between the operator and the device manufacturer,  because the subsidy level is an important part of the negotiations between them.  You see a “top end” device does not want to be too cheap as punters will associate that with poor quality/specification,  and mid tier devices do not want to be too expensive (not enough subsidy) as this will deter their core market (the cost conscious, and cash poor)
It will be interesting to see what the impact of T-Mobiles decision will be.

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Posted in: Business, mobile