28 Days Later

Did you know that a great many pre-paid mobile phone plans have become considerably worse recently? You might not have, since it this change has come about in a pretty sneaky way.

The majority of pre-paid mobile plans offered by Australian telcos are now on 28 day recharge cycles, whereas before they were on 30 day cycles. You might have seen this, and thought nothing of it. Telstra, Vodafone, Optus, amaysim and Virgin all use 28 day recharges (though some also have plans on 30 day cycles).

After all, it’s a pretty small change. What’s 2 days? Well, it equates to an 8.3% increase in your mobile plan costs, or an extra bill each year. It also adds considerably to the hassle of using these plans. By desyncing it from an actual month, it becomes quite a bit harder to keep track of, especially since some months you'll get two bills.

So why have the telcos done this? Why move to a 28 day recharge when there are any number of other ways they can increase profits, or keep abreast of rising production costs?

As production costs increase for a given product or service, a business has two fundamental methods to maintain the profitability of that product or service. They can either increase its cost to the consumer, or they can decrease the value of the product or service.

The first method is the reason why things cost more over time. Often, however, price rises don’t sit well with customers, and so the second path is pursued.

You might have noticed that sushi handrolls are smaller than they used to be, yet still cost the same. Remember when bread started to come in ‘convenient’ half-sized loaves, yet cost two-thirds the price of a full loaf? The same thing happens to mobile plans.

There are several ways this can play out. They can of course just decrease the amount of call credit or data that is included in the plan, though this doesn’t necessarily do the trick.

Firstly, the cost to the telco of included call minutes is often very, very low. It actually makes next to no difference to, say, Vodafone, whether a mobile plan includes 800 minutes of calls per month, or unlimited minutes. Thus decreasing the included call allowance doesn’t really save them any money. The same is true for SMS, which is a tiny dribble of traffic, and costs the telco almost nothing.

Secondly, consumers have been taught to see value in those inclusions, and have become skilled at using them as the basis for comparing various plans. Even people who’ll never go close to making 800 minutes of calls in a month will still opt for the unlimited plan.

Data is a bit trickier – it costs the telcos more to ‘provide’, but in turn customers value it much more – but the same rule applies. As smartphones become faster, we all want more data rather than less, so decreasing the data inclusion is not really an option.

Shortening the billing cycle is a particularly good (or insidious) way for telcos to get around this, since it affects an aspect of the plan’s value that most people aren’t keyed into. We’ve learned to spot value in call and data inclusions, but not in terms of time.

28 days is a particularly clever solution, because at some level a lot of us equate a month to four weeks, even though February is the only month for which that is (mostly) true. We might see ’28 day recharge’ in the fine print, and automatically think ‘1 month’, even though it isn’t.

It’s thus a seemingly small change that many people may not even see, but which has a substantial impact on the long term cost of a mobile plan, and thus the telco’s bottom line – somewhere in the order of an 8% increase, or the equivalent of one extra mobile bill per customer per year.