Why Do Service Providers Charge Different Amounts?

Ever researched average prices for your Internet, CableTV or phone bill, only to find out that you pay far more? Many people simply accept the price that their service provider states, and never question it further. You might believe that you’re paying the same price as your neighbor for the same service, but that isn’t necessarily the case.

There are a number of different reasons that a service provider might charge a different rate for their offerings, including competition, tiered service, geography, and usage. Often, it will depend on the type of service provided. In any event, there are some commonalities drawn from service providers regarding different price points.

Competition

If you ask the question about why the same or similar plans cost different amounts with different service providers, the answer is simple. Service providers compete for many of the highly populated areas. If there is a large number of other service providers offering the same thing (ex: mobile phone service providers), chances are the prices will drop. However, the major service providers—particularly with mobile phones or Internet—try to monopolize their respective markets. As such, they have an unprecedented ability to continuously charge higher prices and still retain consumers with limited options.

Tiered Service

Within one service provider’s offerings, there are still different pricing options. With no competition within one company, why is there a difference?

Service providers engage in tiered service. Tiered service is when a consumer is charged based on the level of service they receive. In the case of mobile phone plans, the different levels are how many text messages are included in the plan’s price, as well as the amount of data, minutes for phone calls, etc. There are also overage charges if a consumer exceeds their plan’s allotted amount.

To put it into perspective, in Canada Virgin Mobile offers Silver, Gold, and Platinum level plans with their consumer phone contracts. What does this mean for you as a potential consumer? Well, say you are looking at a smartphone that would cost you $600 to buy outright with no contract. If you were to sign a contract, typically for 2 years, there will be a discount on the phone. How much the discount is varies based on the “level” of plan you select: with a 2-year contract, you can receive up to $700 off on a Platinum plan, $300 on a Gold plan, and $200 on a Silver plan. After you select your plan level with Virgin Mobile, you can further customize your “tier” by choosing a specific plan. The price differences within each level is the result of different data, text message, and phone minute allowances.

Geographical Location

Did you know that service providers stagger their prices, depending on where you live? Not only can you compare their prices with competitors, but also within the same company on the other side of the country!

With respect to competition, the reason that service providers change pricing based on geographical location is because there could be different regional competitors. Specifically, there are often regional service providers who are exclusive to a region and do not have the same ability to be a nation-wide provider. Any company entering a new region or wishing to maintain their presence must consider these smaller providers.

Prices can also change based on geographical location because in certain areas, companies are able to charge a “premium”. People living in urban areas are often accustomed to paying higher living costs. Because of this, service providers can get away with charging higher prices, with consumers anticipating higher prices.

Additionally, service providers may offer different plans in different geographical regions, resulting in different pricing. For example, some plans may not be compatible with the infrastructure in rural areas. Service providers can then charge similar prices, but for less service and benefits.

Essentially, you can’t assume that everyone with the same plan you have will pay the same amount. Where you live is a major factor.

Higher Prices, Less Service

When locked into a contract, you’re usually safe from dramatic price increases. However, when walking past a kiosk in the mall, you’ll notice that the same mobile phone plan you currently have is now 10% more expensive.

Service providers constantly balance competition, new legislation, and rising expenses when determining a price that will maintain a healthy (or exaggerated) profit margin. Prices will change continuously, and they usually don’t go down. When your contract ends, you can find yourself paying more for the exact same, or even lesser quality of service than you previously received.

On the other hand, when deals or promotions become available, it’s usually for new customers. Everyone has had a frustrating customer service experience where they’re informed that loyalty counts for little for service providers. Customer retention is important, but when you’re locked into an existing contract, they can already count on your money.

Either way you slice it, finding the best price for the best service is often impossible for the average consumer. Prices vary because service providers push as far as they can to see what people are willing to pay.

Internet and Data Usage

Internet traffic and data usage are increasing at a rapid rate, almost double in many cases, despite most Canadians “still subscribing to the same Internet packages they were four years ago”, according to The Globe and Mail. Consumers are downloading and streaming more online content than ever. This is not exclusive to Canada—it is a global phenomenon.

Service providers will often cite the increased data usage and overall Internet traffic as a main reason that prices have increased for their services, in addition to data caps and different pricing for higher data allowances and Internet speeds.

However, just as the usage and traffic have increased, the technology behind the service provision (including routers) has become quite a bit cheaper within the same period of time. Thus, this particular reason does not justify the exponential increase in prices.

Most consumers settle for the prices their service provider explicitly offers to them. However, this does not have to be the case. While most people wouldn’t pay sticker price for a car, we rarely think that negotiation is possible with service providers. The variance in prices as a result of one or more of the above factors does not have to be the ultimate price.

If there were a flat rate for even one particular aspect with service providers across the industry, such as for 1GB of data, the industry would look entirely different. As Forbes indicates, “the first company to make that kind of offer would revolutionize the telecom world as it would bring a new level of transparency to the industry.”

Unfortunately, a revolutionary shift in pricing is unlikely to occur in the near future—making negotiation the only effective route for consumers to achieve better pricing.

The average consumer has neither the time nor energy to deal with the frustratingly long negotiation process. Fortunately, Billshark is here to help. Our expert bill negotiators know who to speak with, and best practices for reducing your rates. None of these factors should lead you to pay more for less service. Let our Sharks fight for you!