Should Mobile Company Charge More Frequently

Fang Li
August 16, 2014
Introduction
Mobile companies in major countries usually charge their users at a frequency of a month. Data plans and
other service packages are also oered at such frequency. For unlimited service charges, space migth be
improved only through absolute prices. However, for monthly subscribed users, revenue of rms can also be
aected when charging frequency is changed.
In US, for example, ATT charges a complete package after an over-use, which is a strong punishment to the
users who use above their pre-determined amount. So people are strong inclined to limit their use after they
approach the threashold. However, in China, mobile users do not have such incentive to turn o their data
usage since they are only charged for some amount per megabytes they use.
Intuitively to statisticians, the less days a cyle is, the more revenue the rms can make from over-use fees
because peoples usage uctuates from day to day and from week to week. They might go on vacation or on
a business trip and increase their usage. Or they might suddenly want to listen to a high-quality music on
their way back. So there is some ucatuation there. The good thing about estimation is that people have
the ability to predict what they might use in a month. If they have a month, they can adjust their usage
over a long time. If at the beginning of a month, they feel free to use much data, then they have a month
to wait for some days bring back their averages.
Here, we will discuss preliminarily how revenue will change if mobile companies change from monthly charges
to weekly charges.
An Example We will start by giving an example rst.
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Here we provide a table. And we will go through the table step by step.
1. Step 1: Set daily mean 9 and daily standard deviation is 3, and over-use charge 3 per 1MB
Lets set our daily usage mean to 9 and daily standard deviation to be 3. What this says is that on
average, a person uses 9 megabytes of data and most likely, he is not going to use over 15 or less than
3. 9 Megabytes can let you stay on facebook for an hour in you view some high quality photos. Or
you can browse some high quality websites with the data. Its a fair amount for general internet users.
Then we know that the weekly mean is 63 and monthly mean, if we set it to be 28 days(xed) is 252.
Standard deviations are also given in the rst row.
2. Step 2: Suppose data plans threshold is 2 times of standard deviation.
By setting this assumption, we immediately know that over 97% of customers do not have to pay
over-use charges every month. We then nd the monly amount that equals two standard deviation
above the average. (270 in the table) Then we get the initial amount associated with it for days and
weeks. Now, we expand the table by incrementing the initial values by one because we know over-use
is charged by 1 MB. Associated probabilities are also listed by values on the right. (For a particular
box, the probability represents that of the actual usage bigger than corresponding amount)
3. Step3: Find out how much mobile carriers can make for over-charges in the status quo.
We add up all the probability values below 2.48% because, by each additional probability, the user will
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be charged another amount of money. Then, we multiply that number by 3. (3 is the over-use charge
per 1 MB) Now, we see mobile carriers make 0.3 per customer for the over-use charges. To be more
specic, the number is 0.2955.
4. Step3: Find out the equivalent amount of data if we charge by day or by week
By equivalent, I mean the mobile carriers can make same amount of money as that they charge monthly.
We will use the goal-seek tool in Excel to try the numbers for us. What we get is 0.35%, then we
back up and subtract from the bottom, then we see at F16, there is a negative number. So, we know
that the equaivalent daily threshold is between 17MB and 18MB. We use linear approximation and
get 17.59. We then do the same to weekly threshold and we get 73.47.
5. Step4: Calculate the nal result.
We multiply the daily threshold by 28 and weekly threshold by 4. Then we get 492 and 294. it will
be neither better or worse o if mobile carriers charge over-use fees per day by giving customers daily
threshold adding up to 492MB per month(28 days), or charge them weekly by giving customers weekly
threshold adding up to 294MB.
Ok, now we know how to get there. Next steps are to duplicated previous ones based on dierent pricing
policies. We will let mobile carriers charge at 1.64 times standard deviation (This leaves 95% people away
from over-use charges) and we will also try 2.5 times standard deviation. The result is provided below.
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We can get several important preliminary messages here.
1. The greater the deviation, the better the improvement.
2. The mean does not have eect on the improvement.
3. The stricter pricing policy is, the better the improvement.
So, if the current mobile carriers is charging casually and their customers dont have much deviation in daily
usage, this discussion might not be useful to them. However, if most of the customers do not receive over-use
charges and they have large deviation in daily usage, the disccusion should be interest.
An Example Assumptions:
1. X
i,t
U(,
2
), data usage over a day is independently normally distributed
2. The usage does not exceed 4 times standard deviation
Daily usage: X
i,t
U(,
2
)
Monthly usage: M
i
=
28
t=1
U(28, 28
2
)
Weekly usage: W
i
=
7
t=1
U(7, 7
2
)
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Set charging threshold B
M
and B
w
B
M
=
M
+

28; B
W
=
W
+

7; B
D
=
D
+ where 1 < < 4
Let f be the over-use charge per Megabytes.
So the expected value of monthly overuse charge is:
Let (x) =
1

e
t
2
dt
CM
i
= Pr(M
i
> B
M
) f (1)
= [1 (
B
M
+ 1

M
) + 1 (
B
M
+ 2

M
) +...] f (2)
= f
{i|B
M
+i
M
4}
i=1
[1 (
B
M
+i
M

M
)] (3)
= f
{i|28+

28+i284}
i=1
[1 (
28 +

28 +i 28

28
)] (4)
= f
[(4)

28]
i=1
[1 ( +
i

28
)] (5)
Similarly
CW
i
= 4f
[(4)

7]
i=1
[1 ( +
i

7
)] (6)
CD
i
= 28f
[(4)]
i=1
[1 ( +
i

)] (7)
Theorom 1 does not aect expected charge of over-usage.
OK, now we need to prove CD
i
> CW
i
> CM
i
and we might also want to dierentiate our comparative
equation to see how sigma and alpha will aect the change. Since all of the proofs are quite similar, we are
just going to show you one that has medium diculty.
Prove CD
i
> CM
i
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First, lets consider a situation where CD
i
happens to have 28 inputs.
(4 )

28 = 28 (8)
(4 ) =

28 (9)
CM
i
= f
28
i=1
[1 ( +
i

28
)] (10)
CD
i
= 28f

28
i=1
[1 ( +
i

)] (11)
(12)
Among the 28 inputs CM
i
has, the largest one would be the rst one. So as long as we prove the average
amount in CD
i
is greater than the rst one in CM
i
, we can prove CD
i
> CM
i
We simply the proof by
taking f out and name g(x) = 1 (x)
max CM
i
= f g( +
1

28
)] (13)
min CD
i
= f

28
i=1
g( +
i

)] (14)
5 <

28 < 6 (15)
F() =

28
i=1
g( +
i

)] g( +
1

28
)] (16)

5
i=1
g( +
i

)] g( +
1

28
)] (17)
(4 ) =

28
1

=
4

28
(18)
F() =

28
i=1
g( +i
4

28
)] g( +
1

28
)] (19)
F()

> 0when (1, 4) (20)

F(1) > 0 (21)
F() > 0 (22)
Also, because for any xed number N, (4 ) = N, we know that and are on the same side. so
F()

> 0, too
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The proofs of other situations are tougher.
Theorom 2 Higher charging frequency is strictly better than lower frequency.
Theorom 3 The greater unit standard deviation is, the higher impact the charging frequency brings.
Conclusion
1. Average unit usage does not aect expected charge of over-usage.
2. Higher charging frequency is strictly better than lower frequency.
3. The greater unit standard deviation is, the higher impact the charging frequency brings.
Application
Mobile carriers can provide data plans according the study. China Moible might want to attract customers
by giving them a higher overall data package but charge customers more frequently. When customers are
shopping, most of them would only consider how much they will get afterall, instead of considering this
uctuation thing. So, this will be a good strategy to attract customers. Its also a strategy to keep loyal
customers. However, there is a caveat in charging frequently. It annoys people. So, the carrier can either
choose to only release this information at the end of the month or simply remind people at the end of the
weekly data plan. Half a month is optional. Weekly charging is also an option. But please dont consider
daily. Customers will get annoyed.
Also, for any other service providers who provides xed amount of usage per month and charge over-use fee,
they might consider changing charging frequency. For example, host providers, streaming service providers,
reading material service providers and cloud service providers, etc.
More to consider
How data plan changes customers behaviour?
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