How to calculate the real cost of a communication plan

1. Introduction

There are many times that you were facing choices and wished for someone to just tell you the reason that this pricing table, is $5 more expensive is because it is red while the other is pink. We, at Keepgo, have the experience and the knowledge to guide all types of Telecommunications consumers through the labyrinth of plans and the language of the services.

In this review we will introduce the types of plans, their actual meaning, characterize their common users and weigh in on their advantages and disadvantages.

We will proceed in reviewing the effective use of the different plans and calculate the effective costs of those types of plans.

Finally, when the time comes to look for guidance, we will provide a “Quick Guide” to help you decide which Telecommunications plan is best for you.

2.Types of plans 

a. Pay per Gigabyte/Megabyte (PPGB/PPMB)

Keyword for this type of plans: “pay exactly what you use”. Where efficiency is quintessential, this is your choice. The main users of these plans are M2M/IoT users, who use little data at a time and want to pay exactly for the data they used.

Efficiency in paying for data comes at a cost: the actual used data cost is the highest per unit of all the types of plans. Also, operators tend to request a minimum commitment of data or value per period of contract. This feature makes it more accessible for wholesalers than for final consumers.

However, regarding efficiency, there is the fine print to check – the size of the measured “jumps” of data consumed, or “rounding”. There are operators who round up to the Byte, there are some that their rounding is based on single KB, and then there are those who round by 100 KB jumps. To explain this point, an example: a refrigerator that sends a signal every day to show its cooling liquid is at a certain level. This “message” is 1 Byte. However, an operator that is rounding at 100KB will count this message as 100KB, and charge accordingly, actually 100,000 times more than the actual data used. This decreases the efficiency from 100%, but in some (non-IoT cases, which use large amounts of data anyway, for example) it is still close enough.

There are very few providers that offer non-commitment PPMB plans, Keepgo being one of those with specially designed plans for IoT with no monthly minimums and data that can be used over extended periods of time.

 b. Monthly Bundles

These are the plans that most end users (B2C) know and learn to live by. The operator sets a limit to be used for 1 month, and every billing cycle the data starts counting from 0. Mostly there is a period commitment to these plans, 6 months or 1 year.

The users also encounter various Fair Use Policies (FUP) which accompany these plans:

1. Throttle Down: When the data limit is reached, the connection continues at the lowest possible speed (usually, 128 kbps when available). This is the most common FUP for bundles. This means that emails and chat messages are received and sent, but don’t bother uploading a picture to your social media account…
2. Capped (or Hard Cap): When the data limit is reached, the connection stops.
3. Overage: When the data limit is reached, the connection continues at the same speed, but the cost of this data is more expensive per unit than the data within the limit.

The reality of these bundles is that most (uninformed) users overestimate their forecast in usage, so efficiency is low – our data in Keepgo points to about 20% of the data available is used every month. More information and details can be found in https://www.keepgo.com/blogs/articles/73459011-exposing-local-data-sim-hoax, a note published by Guy Zbarsky (a co-Founder of Keepgo) in 2015.

This is the type of plan used, as I mentioned before, as a base in local operators.

c. Pooled (also known as Shared Bundle)

In this case, there is a common data “pool” which is shared by several lines. To understand this better, there are 2 examples of pools. The first, each line adds the amount of data of its bundle to the common pool. For example, a company had 100 lines of 4GB each, the total of the pool is 400GB. If the company wants to add more data, it needs to purchase more lines. Payment is based on the number of lines which are activated. The second, there is a set total data and the company can distribute it to several lines (usually there is a limit in the total number of lines). The payment is based on the data of the pool.

Both cases are usually capped – meaning, the moment that the total data limit of the pool is reached, the connection ends. In a few cases, there are expensive overage charges.

As you noticed, the examples were for companies – this is what wholesale distributors of data tend to use, with a very efficient rate of 80%. Specifically, this applies to plans which can be managed by the wholesaler, who can then proceed to shape their plans for the final user.

Price wise, there is a wide range of figures. As a rule of thumb – when the pool is based on data amount to be committed to purchase periodically, the price per GB is low, even lower than bundles. However, if the pool is set up as a sum of data of all lines in the pool, then, the price may increase, even all the way to the pay per GB level.

d. Daily Pass

Asian travelers are the main users of this type of bundles. I wrote “bundles” because this is what they are – instead of monthly bundles, they are bundles which are limited per day to set amount of data, and after this limit is reached the data is throttled down. Since the time is limited and the user is usually better informed, the efficiency is relatively high – about 60% usage of the total bundle.  These plans tend to be more expensive than the monthly bundles per GB, but for short-term use they might be more convenient, as the total amount to be paid is smaller than a monthly bundle.

e. Prepaid Bundles/Pay as you go

Finally, as any traveler can bear witness, the prepaid data plans. These are SIM cards that have a limited period of use, be it one week, a month and up to 90 days, and an amount of data to be used, and do not automatically renew once the period is over. In a lot of cases overpriced due to their location and service type – sold for foreign nationals coming to travel who do not have time for price comparison. Since the consumers are uneducated and tend to overshoot in their estimate on the data to be used, the efficiency rate is low, around 40%.

The main disadvantage of these plans is their time limit. At Keepgo we offer these plans under the label of “Lifetime” – which is what they are. The data is there for the user to consume forever, hence the consumer gets to proudly use the data efficiently.

3. Effective costs of plans

Paraphrasing Stephen Hawking, with every equation used in a paper 50% of the audience is lost. So we will try to keep the equations to the least number possible.

We define the Effective Per GB Cost (EpGB) as the cost of used GB. In other words, we take the total amount paid (Cost, C) and we divide it by the total data used. Each plan has an efficiency Coefficient (K, which lies between 0 and 100%), which we spoke about in the previous section, so the total data used is the plan data (PD) times this coefficient:

As we said, K is about 20% for monthly bundles, and close to 100% for PPMB plans.

We like putting this into numbers, in an example:

There are 2 plans offered for Aruba:

Option A: PPGB at 10 USD/GB

Option B: 10GB at USD 50 monthly bundle.

Since the stated per GB cost is lower in the bundle plan, the uneaducated consumer might choose it.

We know better: Let’s calculate the effective cost of each plan:

In the case of PPGB this equation simply states that the rate offered by the operator is the Effective Per GB Cost. In this case, 10 USD/GB

At the other end of the spectrum the monthly bundles’ Effective Per GB Cost is 5 times the calculated rate based on the subscription plan. Yes, I did this calculation for you, but just in case, at 20% efficient use of the bundle the equation is 1/0.2, or 5 as I said. Since we are looking at a 5 USD/GB stated rate, the effective rate turns out to be 25 USD/GB.

Just to confirm this result – at 20% efficient usage of the bundle we are talking about total usage of 2GB. The bundle cost is fixed at USD 50, while the PPGB plan costs 2*10 = USD 20.

4.Conclusion: Which plan suits you?

The cheapest, of course.

Now seriously, below is a table consolidating this review, and including the results of the effective cost. By looking at this table, you, as a consumer, can have a good set of rules to decide.

Table 1: Quick Reference Guide for Effective Telecommunication Plan Prices

To use this table, take the published rate in the plan and multiply or divide as indicated in the last column of the table to find the effective cost of a plan. This result gives you, the consumer, the tool to decide which plan to choose – the lowest effective cost plan (all other parameters being equal).

Since we, at Keepgo, work daily with this terminology, we know what to expect with the distinct types of offers. For more information, contact us anytime at your convenience.