The Christmas bill shock hangover
This week I had lunch with a friend of mine, Chris, a CFO and shareholder of a medium-sized company. We ate at one of the new hipster joints in Bree Street, Cape Town and watched a lot of beautiful people do hipster stuff.
When the lunch arrived we exchanged the usual stories about the Christmas holidays: How we indulged too much, how we are going to get fit again and how two weeks with the in-laws is quite enough, thanks.
We then moved on to the new year’s adventures, and this is where it got ugly. Chris told me about the nasty surprise he got when the bill from his mobile operator hit him in early January for his December usage. A cool R7,000. Up seven-fold from his usual bill of around R1,000 monthly.
How can this happen, you may ask (except, of course if this has happened to you too — in which case an expletive is more probable). The answer lies in so-called out of bundle pricing.
How bill shock happens
Mobile operators typically sell customers a monthly bundle of data relatively cheaply as part of a 2-year contract. This usually also includes SMS and voice — for example 300 MB of data, 120 calling minutes and 300 SMSs — per month. But, on average, the data bundle is not big enough for many customers. The pain for consumers starts from the moment the data bundle is depleted as the price for data goes up exponentially thereafter. From between 5c and 12c per MB for your in-bundle price, to around R2 for out of bundle. Between 20 and 40 times more, give or take. That’s big. A little extra data usage in a month and bam! You’re hit by a shocking bill, or as it is better known: you get bill shock.
How big?
MTN’s data revenue increased by 37% to R13bn and Vodacom’s increased by 28% to R17bn last year. Of this R30bn of data revenue, I estimate roughly half is out of bundle revenue — R15bn worth. Against a backdrop of declines in revenue from voice and SMS, don’t expect out of bundle data shocks for customers to go away anytime soon — it’s the golden goose for the operators!
The problem for M2M and IoT
Here at Flickswitch we have heard similar stories from many of our customers over the years, with an additional complication: our customers typically have many SIMs in many devices all over South Africa. And crucially these SIMs are in devices with no human to attend to them. Think of hundreds of trucks with monitoring units containing SIMs, or SIM-containing remote moisture probes on far-flung corners of farms. And then, sometimes, those SIMs get stolen. Or the device in which the SIM resides goes crazy, or the firmware on the devices go crazy. And they start using lots and lots of data.
If that were to happen on any type of scale to a company, they could very easily end up with a mobile phone bill in the hundreds of thousands of Rands due to out of bundle data charges. And this has happened to many of our clients over the years — and will continue to happen for as long as customers opt for contract billing.
Our solution
We solve this problem by offering customers a managed solution — SIMcontrol — using prepaid SIM cards exclusively, making out of bundle risk a thing of the past.
Now, I hear you say: prepaid…isn’t that for people who can’t afford contracts? No. Prepaid is simply a billing mechanism. And it suits the needs of customers with large numbers of device SIM cards perfectly. Device SIMs typically use mostly data. And prepaid pricing for M2M devices is compelling. Data costs around 5c/MB on the largest bundles and you can get a small bundle for as little as R6. And then your costs are capped. You never pay more than what you have budgeted for. With prepaid you never have the risk of a stolen SIM costing you huge amounts of money, or haywire devices breaking the bank. Your exposure is limited. On an individual SIM basis.
SIMcontrol makes it possible for companies to test and roll out M2M and IoT concepts and products which they otherwise may never have been able to do. We help them build the internet of things cost-efficiently.
The future
Managed prepaid only solves the problem for customers with many devices, though. The larger problem for the mobile industry and its consumers remain: how to get operators to kick the out of bundle habit. I doubt operators will be able to do so without reducing mobile industry revenue in SA in aggregate. But then consumer unfriendly pricing has a way of always hurting the culprit in the long run. And the level of our out of bundle charging certainly qualifies. Luckily for consumers the first shots in the consumer space has been fired on this front with the launch of Telkom’s FreeMe price plans. Let’s hope the trend continues — to the benefit of consumers.
I told Chris he was lucky he did not have hundreds of SIM cards who all got a Christmas out of bundle hangover. I paid for lunch.
