The Real Price of Data: Breakage Breakdown

It all comes down to effective cost, or however much you pay divided by however much you use. We see an opportunity to help the majority of our members avoid paying an inflated price by paying them back for what they don’t use. Dollar for dollar. Fair is fair.

Extra cell data is not a safety net, it’s a sinkhole. A money pit. An easy fix to make you buy into what seems simple. We are trained to think we need tons of data to use our phones, when in fact, 1GB is enough to send or receive 50,000 emails (without attachments) or to stream 33 hours of music1. Last year, the average smartphone caller used 1.9GB of cell data a month2. At Republic, the average usage among our members with a data plan is right around 1GB, with close to half of data members using less than 500MB. Moreover – if you consider our entire member base, which includes $5 and $10 members using 0MB of cell data, then that percentage jumps up to 71% of members using under 500MB. WOW! So, what happens when you use so little on a plan with so much? You pay for it…something our clever members have had figured out for a while now.

But what if you could pay only for what you use? What if you got paid back for what you didn’t? We figured out a way to save roughly two-thirds of our members money and give our Talk & Text members the option to pay for small amounts of data as they need it. And the best part? You don’t have to do a thing or change any behaviors.

Here’s what we know to be true:

We’ve been reading a lot of comments since our Maestro announcement and the subsequent Google Project Fi announcement, and the one thing that struck us most is that a lot of folks don’t know how much a GB of data should actually cost. Most carriers have done a great job making that a hard thing to know.

Well, here’s how we’d explain it:

When a carrier prices any data plan, an important assumption is what the “average” customer will use. For example, if you are trying to price a 15GB family plan, you have to consider what the average usage for the entire plan will be. Will it be 15GB? 7GB? 4GB? If you know what the average customer will actually use, you then know roughly how much cost you will actually incur, allowing you to price data with an understanding of what your actual margin will be.

BUT – here’s the catch…There’s no such thing as an average customer. Everybody uses their phones differently.

On Republic’s current plans, we’ve observed a phenomenon that the large carriers are likely very familiar with. We’ve described it before but let’s revisit the main fact…a small percentage of our data plan users drive an inordinate amount of the total cellular data consumption across our entire data-using member base. This higher usage inflates our cell data usage average just past 1GB, while the vast majority of data-using customers consume far less than that. About two-thirds of our members on a data plan use under 1GB of cell data, while close to half use less than 500MB, and about one-quarter use less than 250MB. Moreover, 42% of our overall customer base choose to avoid cell data altogether. They rely wholly on WiFi for their data needs through our awesome $10 WiFi + Cell Talk and Text Plan. Crunch all these numbers together and over 80% of our current customers use under 1GB per month. The average usage then is pushed way up by the top 4% of customers, who are using in excess of 3GB. Here’s basically how the graph looks…

When you have a huge majority of customers on the left side of that graph, and a small (but expensive) group of customers on the right, then the average usage fits right in the middle, where almost no one actually is. Here’s where the unfairness creeps in – everyone on the left winds up paying for what the 4% on the right is using. Suddenly, you have the majority of your customers paying for what the least amount of people use.

Fair is FairSo, when the big carriers offer 15 GB for $130, you might say, “That’s a good deal! It’s less than $9 per GB.”  But here’s what’s really happening: The carrier is betting that the average customer will use far less than 15GB, probably a little less than half of that for a family of four. So, for your $130, the carrier is really only having to cover the cost of around 7GB of usage. In that case, you’ve effectively paid around $19/GB for the data you’ve used, not $9.

This is how almost all wireless data is priced across the industry. It’s called “breakage.” But, we’re going to do something about it, with you, together. We see an opportunity to save the majority of our members more on their monthly bill by paying them back for what they don’t use. Pretty soon members may have a $17/month bill or $13 or $27 – all relative to their usage patterns. Everyone isn’t the same, so why pay the same? This, fundamentally, is why we are testing new plans in Republic Labs.

But isn’t it just the top percentage of cell data users that are causing the issue?

Technically, yes. But a smartphone is designed to make your life easier. There is no wrong way to stay connected, and that’s what we’re in the business of doing: Helping people stay better connected. As WiFi continues to blanket the world (an estimated 340 million hotspots by 2018), there is no question that WiFi + Cell are a winning combination to keep you in touch with the folks who matter most.

We believe you can use your phone however you want. And the good news is we’re developing tutorials, new tools, and app features to show you how to optimize your phone to make it as easy as possible to use less cell data. We believe we can help “high data users” get their usage down to where they can save too. We believe you can have a fairly priced plan that’s the right fit for you. Dollar for dollar. Fair is fair.

1. Citizens Utility Board
2. Cisco
3. Data Usage Policy
4. Plus taxes and fees

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