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Complex Cell Phone Plans Dumbfound Economists, Too

by Caleb Johnson on November 16, 2009 at 05:54 PM

Cell phone plans are complex creatures. With all those options for minutes, text messaging, and Internet, it's impossible to figure out exactly what you're paying for. The result? Thoroughly confused, many customers just play it safe and purchase the most expensive packages.

Barry Nalebuff, economics professor at the Yale School of Management, told the New York Times, "The whole pricing thing is weird. You pay $60 to make your first phone call. Your next 1,000 minutes are free. Then the minute after that costs 35 cents." It's all clear as mud, right? Basically, phone companies want to squeeze as much money as they can out of each customer. Unfortunately, the need to keep investors happy can become more important than the consumer's best interest.

As it turns out, consumers often act in irrational ways, too. We all want instant gratification (or, in this case, instant savings), which isn't always beneficial when it comes to cell phone plans. For example, AT&T and Apple's old iPhone price point ($399 for the phone and $20-a-month for Internet) was actually cheaper in the long run than its newest one ($199 for the phone and $30-a-month for Internet). But many people didn't purchase the smartphone until it became "cheaper."

When neither consumer nor provider is behaving rationally, it's difficult for anybody, even an Ivy League economist, to unravel the these complex plans. What's the solution? Well, consumers must learn to think more long-term. Phone companies, meanwhile, must learn to simplify plans. [From: The New York Times]

Tags: apple, att, cellphone, internet, iphone, money, sprint, texting, top, trends, verizon

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