Why is the charging of mobile phone so complicated?

--The insight of cell-phone’s payment from an economic point of view
Have you ever been tangled with the complicated charging rules of China Mobile’s PEOPLES? I guess the answer is absolutely yes. Every one of us always tries our best to figure out a plan that costs reasonably and brings us as much benefit as possible. As for the China mobile, the reason why those plans are always so complicated is just because they are trying to set different prices for customers with different needs and preferences in order to make their own profit higher. Besides, complicated rules makes consumers tired and “give up” to them.
In the real life, there are several service plans provided by PEOPLES, such as Voice Service Plan (designed for those who mainly make phone calls in daily life), Data Service Plan (designed for those who use cell-phones for multimedia purposes frequently), and so on. To make things simple, we just focus on the phone call intended consumers. Let’s assume that there are only two kinds of consumers in this economy, Type A are those who “only make phone calls when it is necessary”, they don’t use their sell-phones often so their calling time is short, only hundreds of minutes per month. Because their phone calls are lesser and important, they are willing to pay their calling fees at HKD$0.4/min. B are those consumers who make phone calls very often, and most of their phone calls are not for important affairs. So, they can only accept the calling price to be within HKD$0.2/min. As the graphs show, horizontal axis represents the calling time per month, and the vertical axis is for acceptable calling prices per minute, colored area refers to the total acceptable fee per month:

According to the cost & benefit principle, PEOPLES certainly hopes to get as much calling fees as possible. It tries its best to make the calling fees closer to the maximum acceptable fees of different consumers. (say, for consumers of type A, PEOPLES will try to make the gap between the actual fee and acceptable fee as smaller as possible, the closer to 200, the better). In order to reach this goal, PEOPLES separates the calling fee into two parts, one is called the monthly fee which is a fixed fee and do not have anything to do with the calling time; the other is floating calling charge which is determined by the calling time. The following are the plans aimed at A and B respectively.

For consumers of type A, (don’t often make calls), they will choose Plan1. Under this plan, they pay $0.25/min and if they call for 500mins every month, they pay $125 for floating calling fee and $60 monthly fee, so in total the fee goes to $200, lesser than their acceptable price 200. The same calculating for consumers of type B results in $380 actual payment which is $20 lesser than the $400 acceptable fees. Under this condition, customers of both types will go for their plan respectively.

In contrast, consider PEOPLES provides only one kind of service to consumers of both type A and type B, say, when PEOPLES provides only he plan of saving monthly fee, what will happen? Because consumers of type B can only accept prices no higher than $0.2/min, so they will not choose PEOPLES then. And suppose consumers of type B constitute half the total consumers in the economy, PEOPLES will certainly lose a lot. If PEOPLES only provide service of saving floating calling fee, it will lose for the same reason. Actually, the cost of providing two sets of services is nearly the same with providing only one set. This is because PEOPLES’s cost mainly include the maintainance cost of nets and repairs, employees’ wages and other operation costs, so adding services does not cause much change to its cost. Cost&benefit principle holds that an action should be taken if and only if the benefit of doing so exceeds its cost. Provided that providing different services aimed at different consumers helps get more revenue , help occupy market share while does not increase the cost a lot, it is wise for PEOPLES to take that action.


In the real life, the charging process is much more complecated. Communication companies often offer much more different kinds of seemingly favourable services more than just two. An important point here is that consumers’ transaction cost (the energy and time a consumer will take to get information and make right decision) is the key element of companies successful price discrimination. Generaly speaking, companies promoting complicated charging systems are intended to improve consumers’ transaction cost. Advertisments are the best indicator of this purpose. Often, advantages of a service are always emphasized or exagerated, but the important information for decision making is always shown in small letters or just ommited.



In fact, the advertisments are just like test papers to test consumers ability of understanding the information. Important information is hiden so that consumers’ transaction cost (say, time, energy,etc)will be improved. In order to make the right decision, consumers have to make more efforts and spend more time and energy. Most consumers are not able to anylize the advertisements clearly. They will always get annoyed or just fail to work out the right plan. They not only pay more money but also energy and time, which have value, too. Even if they realize their mistakes and switch to the right plan in the future, they have already paid a high transaction cost. Plus, companies always charge a lot for the transforming of service plan, and the transforming usually takes a long period of time to be valid.
That’s basically why communicating companies always promote complicated service plans: to get your economic surplus as much as possible and make you surrender to the complexity!