Mobile phone companies serve a bill alert though email or via SMS when you are about to exceed your plan limit. Many of us feel that this makes things better for us. However, just the opposite may be happening, pointed researchers from University of Toronto Mississauga. Bill warnings can be more costly because cell phone companies adjust their plans and fees accordingly to maintain profits. They found that while some consumers do benefit, others either decrease or stop usage, end up with more expensive plans or continue to underestimate their usage and choose the wrong plan.
Matthew Osborne, assistant professor of marketing at University of Toronto Mississauga, said, "Fixed prices go up, free minutes go down and then some of the overage rates drop. But the overall effect is that the average person pays more."
Researchers used monthly billing data for a group of student cellphone customers. In the data and modelling the researchers used, bill shock alerts cost people $33 extra on an average. People who chose to stay on the most expensive plans fared best.
The authors wrote, "Although much has changed in the mobile phone world in the last decade and students' choices may not reflect the broader market, verification tests run by the researchers suggested bill shock alerts still take a toll. Perhaps a better avenue is policy that helps consumers do a better job of forecasting their usage."
The research should lead policymakers to reconsider what measures will actually benefit consumers. It could have application to other services where consumers need to monitor their activity to avoid extra costs, such as banking overdrafts, utility services and even health insurance.
The study appears in American Economic Review