Wireless customers hit with higher-than-expected bills when they exceed their monthly allotment of calling minutes could begin to see some relief. Sprint PCS and Nextel Communications Inc. have introduced overage protection rate plans that some analysts note could increase customer satisfaction at the expense of maintaining recurring revenues.
Sprint PCS made the biggest splash in the new segment last week with the launch of its Fair & Flexible plan that provides customers with a standard 300 anytime minutes and unlimited night and weekend minutes for the same $35 per month that the carrier charges on its traditional Free & Clear plans. The difference between the two plans becomes apparent if a customer goes over the allotted anytime minutes.
With Fair & Flexible, customers are charged a flat rate for a bucket of overage minutes beginning at $2.50 for 25 minutes, up to 650 total minutes. It then switches to $2.50 for 50 minutes up to 1,250 total minutes, at which point customers are charged a flat seven cents per minute. By comparison, Sprint PCS’ Free & Clear plans charge a flat 40 cents per minute for overage on all plans.
The carrier said it expects the new offering will generate strong consumer interest and maintain average revenue per user.
“With this new offering complementing our lineup of traditional priced plans, we expect to add to our share of customer decisions and sustain our strong average revenue per customer,” said Len Lauer, president and chief operating officer of Sprint, who added the flexibility of the plan also would help keep customers.
“Because it will alleviate many of the issues customers have had with traditional wireless plans, Sprint believes the long-term customer loyalty will become even stronger,” Lauer added.
Lauer’s link between the plans and customer loyalty received some support last week as a report released by the Council of Better Business Bureaus showed that nearly two-thirds of the more than 18,000 complaints filed last year with the CBBB against wireless companies involved billing problems.
Analysts noted Sprint PCS’ plan should draw the most attention from customers interested in the carrier’s lower-priced rate plans as it matches the current Free & Clear offering while providing a form of overage protection for the occasional high-usage months. Critics argued that customers who typically use more than 500 anytime minutes per month would be better served by Sprint PCS’ higher-priced Free & Clear plans, which offer 500 anytime minutes for $40 per month compared with the 350 minutes a customer would receive on the Fair & Flexible Plan and $10 in overage buckets.
Analysts also warned the plan could hurt Sprint PCS’ bottom line if it proves too successful.
“If the plan catches on too well within the Sprint subscriber base, the carrier could see a large number of existing clients switching over from other mid-range Free & Clear plans to Fair & Flexible,” Current Analysis cautioned in a research note. “This could cause a drop in ARPU if most of the customers looking to switch are currently on plans guaranteed to make the carrier at least $50 to $60 per month.”
Nextel’s Flex Plans, which the carrier has launched in selected markets, take a different approach by providing customers with a lower overage charge than its traditional plans and automatically bumps the customer up to the next highest rate plan according to usage. Nextel’s Flex Plans begin at $40 per month for 400 anytime minutes, but unlike Fair & Flexible, they also offer additional tiers at $65 for 800 minutes, $90 for 1,200 minutes and $250 for unlimited usage. The plans also include unlimited night and weekend minutes along with 100 Direct Connect minutes.
Customers who go over their allotted anytime minutes are charged a flat rate of 25 cents per minute, compared with the 40 cents per minute Nextel charges for its National Value plans, until the total charges exceed the next-highest-tiered plan, which they are switched to automatically.
Bear Stearns noted that Nextel’s Flex Plans should prove positive for customer churn as “increasing predictability of the bill will keep customer complaints down and churn under control.” Bear Stearns added that the plans should only have a minor impact on Nextel’s revenue as it only collects 10 to 12 percent of its monthly average revenue per user from overage.
AT&T Wireless Services Inc. was one of the first carriers to offer an overage protection plan for customers when it launched its SureRate plans last November. The offering began at $60 per month for 667 nationwide anytime calling minutes, unlimited night and weekend minutes and a fixed overage cost of nine cents per minute. The carrier recently dropped the offering, noting customers did not seem willing to accept the fewer anytime calling minutes compared with its traditional nationwide rate plans in exchange for lower overage charges.
“There was just not a huge response to it,” said AWS spokesman Ritch Blasi.
