* The advantages of flat-rate services
As we look at today’s economic landscape, only one thing seems scarier than controlling expenses, and that is having unpredictable expenses. For that reason, we expect lots of services that have traditionally been usage based to be even more attractive if offered as a flat-rate service.
In addition to removing the ambiguity from the budgets, flat-rate services have another major advantage. They’re easier for the service provider to administer. In fact, it’s our guess that a significant portion of the cost of providing a lot of services today is the cost of accounting and billing.
A perfect case in which usage-based services are particularly problematic is cellular (3G) technology. A few months ago, we recommended that you consider the use of cellular technology for road warriors and as a backup for other workers who might need “light broadband” service. That strategy has continued to work well from our perspective.
That said, the usage-based prices of some of the providers – even in a tiered environment – are problematic. For instance, Verizon Wireless offers (in the U.S.) two data plans, $39.95 for up to 50MB per month of data transfer and $59.95 per month for up to 5GB of data transfer. (Data is measured in both directions.) So you don’t have to do the arithmetic, this comes out to 80 cents per MB at the basic plan, but only 1.2 cents per MB at the very slightly higher priced plan. So the 5GB option is a no-brainer.
However, the rub comes with overage charges. Both plans have a surcharge of twenty-five cents per MB once you cross the threshold. So not only can the charges mount rather quickly, but, the database as to current usage is not updated realtime. (It seems to be updated approximately once daily.) So if you happen to hit a period of high usage, the surcharges can mount quickly.
From our experience, hitting that overage mark takes a lot of data. So, for many users, 5GB equals essentially unlimited transfer. But why not just go ahead and make it unlimited – or at least not have the overage charge more than 20 times the contract rate?
As a footnote, usage charges can also cause confusion in billing. A prime example of this is documented here. A spokesperson for Verizon Wireless confirmed that this conversation was real. However, he also pointed out that the situation occurred back in 2007, and that Verizon customer service reps have since received training so the situation does not recur. But flat-rate services would obviate the need for this confusion in the first place.
