Flat Rate Telephone Service - A New Pricing Model

by Brian McConnell

Flat rate "unlimited" pricing is now a standard offering among VoIP providers. However, in most cases, "unlimited" really means "unlimited, except when we say it isn't". It is common practice for VoIP providers to kneecap customers for going over unpublished limits. For example, my Broadvoice account was recently suspended after I racked up about 1200 minutes, including a lot of international calls. My account was "rerated" and they attempted to upsell me to a "business class" unlimited package. They backed off after I pointed out that "unlimited" means just that.

I sympathize with service providers, because they are catering to two very different customers, and have no way of telling them apart at the time of sale. One type of account is a personal use account, where one person is accessing the service via one terminal device. The other type of account is a group use account, where multiple users share a VoIP line. Small businesses do this all the time by wiring a VoIP terminal adapter up to their intercom system and using that line for long distance calls. Many people share the line, and not surprising, consume much more airtime. If they don't tell the service provider what they are doing, they don't have an easy way to find out, except to look for "heavy" use and kneecap offending accounts.

Consumers seem to care more about flat rate pricing, so they know what their monthly outlay is going to be, regardless of how they use the service. Nobody watches TV by the minute, and the days of metered telephone service, even cellular, are clearly nearing an end. What customers want is a fair deal, which means knowing up front what you will get for a given price.

That's the problem with the "unlimited" plans on the market. Service providers bury fine print in their terms of service that gives them the right to redefine accounts at a whim, and to penalize customers for going over some unspecified threshold on a supposedly unlimited plan.

The service providers have to do this. Most of them pay metered rates on outbound traffic, albeit at perhaps a fraction of a cent per minute. But when you're talking about millions of minutes, half cents add up. They take a calculated risk that if you spend $20/month for unlimited service, you probably won't use more than 2,000 minutes. Averaged across a large user population, they assume most people will consume less than they think they do (when they could actually save money by going with a standard pay by the minute plan). This would alll work out fine, were it not for freeloaders who share a VoIP line with multiple users, typically by putting the VoIP adapter in front of an intercom or PBX system. A user like this can easily consume 5,000 to 10,000 minutes per line if it is in heavy use, in a call center for example. So to prevent freeloaders from helping themselves at the trough, they have to impose some sort of limit, which leads to disgruntled customers.

I am floating the idea of a fairer pricing scheme that protects consumers and service providers by combining flat rate pricing with a faily usage cap. A provider might offer a set of packages like:

-- $9.95 flat rate calling, up to 90 minutes of weekday calling per day, unlimited evenings and weekends
-- $19.95 flat rate callling, up to 180 minutes of weekday calling per day, unlimited evenings and weekends
-- $49.95 flat rate, unlimited calling, no strings attached

This approach allows consumers and service providers to meet half way. Consumers get a fair deal, and if they consume more than their daily quota, they get a busy message, and can either delay calls until tomorrow, or upgrade to a higher limit plan. Service providers can offer even more attractively priced deals to consumers who do not live on their telephones, without exposing themselves to losses due to freeloaders. The people whose intent is to hook a VoIP line up to a PBX for 24x7 use will have to pay the actual cost of a leased line, where consumers are, in actuality, sharing a leased line for all practical purposes.

Now some people will complain that $19.95/month for flat-rate pricing with a 3 hour per weekday cap is miserly, but let's do some quick math to put this in perspective. That works out to 60 hours of weekday use per month. Let's assume the user wants to place all calls during the capped weekday period. That's still up to 3600 minutes per month, or about 0.5 cents per minute, about 50 times cheaper than long distance calls were about ten years ago, and 100 to 200 times cheaper than most international calls once were.

Of course, this is not really a new idea, since many providers are, in effect, already doing this, except they are doing it in a very ham-handed way, by suspending or terminating accounts and forcing customers to complain, rather than by telling customers up front that if they go over their limit, they'll get a busy signal for a few hours. If they know to expect this, they'll pay attention to their usage, or pay a little bit extra.

The cellular companies sort of do this by selling bundles of minutes, except they hit you with a userous overage charge when you exceed your allotment, and do not do you the courtesy of telling you when you've done so. They assume you'll be too lazy to check, as most people are, and then stick you with a bill twice as large as you expected.

Since VoIP providers base their service on a low fixed price, standardizing around this pricing model will be an easy way for them to cater to both casual users and businesses without penalizing their own customers. We'll see if this idea sticks. They are phone companies, after all, and even among most VoIP providers, my experience has been that while prices are lower, the attitude toward customer service is not much better. In other words, meet the new boss, same as the old boss.

2 Comments

Brock
2006-01-24 11:51:13
I dispute the sentence "The service providers have to do this."


No, they don't. The service providers chose to go into business with an "Unlimited Calling" scheme. If they can't make money doing that, they shouldn't be in that business / pricing model.

Vera Sinha
2006-03-19 07:06:22
They don't have to offer the service. We the consumer is being slammed by business like BroadVoice for so call "Unlimited Calling" plan that only cost you $25.95 monthly, at the end will cost you alot more. Take time to see by loging on at: www.broadvoicesucks.com and you will see for self.