Thinking of changing to a shared mobile data plan? Beware of these pitfalls to avoid locking in future unplanned costs.
Most businesses are becoming familiar with the concept of shared mobile data plans. Shared data typically makes the management of mobile data much simpler than managing individual data bolt ons, especially for larger mobile estates. Typically, removing IT administration costs from tariff management and also removing excess data charges when users exceed their allowances.
At face value shared data plans look like great value for money, especially if your business is currently experiencing regular bill shock from excess data usage. However, normally shared mobile data is more expensive per GB than on individual plans and there are also many different nuances when it comes to using shared data that can easily lead to unplanned future costs, especially as usage increases. So, businesses need to be careful they don’t fall into the trap of thinking that shared data offers a utopia of always being the most cost effective, ‘one size fits’ all solution.
This article looks at some of the challenges of managing mobile data tariffs and mobile data usage with the aim of helping your business to establish what type of data plan or combination of plans might best suit your business needs.
Understanding the Terminology
Before we get into the detail it’s important to understand some of the different types of data plans and their core attributes as well as some of the more common terms used when discussing data allowances and tariffs.
Data Bolt Ons – These are data allowances that are purchased to provide data on a voice connection to make a smartphone tariff. Commonly starting at 500MB these plans offer increasing allowances, in some cases up to 100GB or even ‘unlimited’ – however in reality unlimited plans are normally subject to fair usage limits and are largely designed for the consumer market.
Excess Data Charges – When a data allowance is exceeded the user will typically incur excess data charges. This is the traditional way that mobile data has been sold to businesses and these charges range from £10-£20 per additional GB of data, normally charged in whole GB increments – so if you exceed your allowance by just 50MB you pay for an extra 1GB. Excess data charges are one of the most profitable and ‘hidden’ charges for mobile networks.
Data Top Ups – Some vendors offer additional data allowances that can be bought during the month when the existing data allowance runs out. For example the user could elect to purchase an additional 500MB, 1GB or 3GB of data for a fixed one off charge. At the end of the month the allowances reset. Unlike excess data charges which are automatically applied, data top ups allow the user to choose to increase their allowance and costs for the month, however if they don’t agree to the extra charge their data is barred. We therefore tend to see data tops up’s being used for consumer and very small business tariffs.
Shared Data Plans – There are two main variants of these shared plans:
A Shared Data Pool – This is where the business purchases a single large pool of data for a fixed monthly rental charge (e.g. 100GB of data)- which is then shared across all connections. Commonly these shared pools also have a ‘sharer’ charge which is applied to each connection that is enabled to access the data pool. In this model the data plan is a static allowance regardless of the number of connections that access to pool. When the overall allowance is exceeded then excess charges will be applied.
Aggregated Data Allowances – In this shared data model each connection is allocated a data allowance (e.g. 1GB) however the allowances are aggregated to create a data pool. So 100 users would share 100GB in this example. In this model the overall shared data allowances increase and decrease with the number of connections.
Mobile Broadband Data Plan or Data Only Plan – These plans are designed for standalone data dongles or MiFi devices, tablets or any device that doesn’t require a voice service (e.g. a toughbook). They typically work in the same way as Data Bolt Ons, offering a set amount of data per connection per month with excess data charges applying when the allowance is exceeded.
How do Individual and Shared Data Plans Compare?
As a general rule shared data plans deliver their value by helping businesses to cope with fluctuations in usage across their connections each month. For businesses with a relatively constant aggregate usage, having a shared data allowance that covers the combined usage will remove excess data charges and provide continuity of monthly charges.
In contrast, organisations using the data bolt on model regularly incur significant excess data charges when only a small group of users exceed their monthly allowances, even though overall the business may have only been using a small percent of the aggregate data purchased. So, as long as the shared data package is charged at less than the legacy bolt on rentals and excess data charges, then the business will normally make cost savings. It is important however to factor in any ‘sharer’ charges when comparing models.
Most businesses are opting to move to the shared data route, and whilst at face value this offers a better option than managing individual data bolt ons it is far from a perfect long term solution. For those businesses that don’t think through the longer term implications of these plans or negotiate specific contract terms and costs relating to increasing or decreasing allowances, then they are likely to incur large and unexpected future cost increases when usage patterns change and they are locked into a new contract.
Let’s look at some of the challenges that larger businesses have experienced after migrating to shared data plans:
Challenge 1: Under Estimating Allowances
The simplest and most common mistake that we see is for customers to base their new allowance on their average usage when comparing vendors. In most businesses, data usage varies from month to month and therefore basing decisions on the average can mean that in peak months the business will incur excess data charges.
It’s also common to see customers failing to include roaming in the EU or other countries that draw data against the UK Shared day allowance. This can lead to underestimating allowances, which again may quickly lead to expensive excess data charges.
Challenge 2: Internal Cost Recharge
With shared data plans the entire rental charge for the data plan and excess data charges are normally charged to a ‘leader account’. This can either be an individual user or a dummy account. Straight away however, this means that the data costs can no longer be simply or accurately recharged to the appropriate cost centre and user. Many large businesses don’t have a central budget for mobile charges and instead recharge to business units and so shared data creates a finance and administration issue which often only comes to light after the change has been made.
There are multiple ways of addressing this challenge, and you’ll find a detailed best practice guide in the Utelize Resource centre on this topic. https://www.utelize.co.uk/resource/mobile-telecoms-recharge-internal-billing-models/
Challenge 3: Lack of User Accountability and Hidden Costs
One of the biggest impacts of implementing a shared data model is that individual usage becomes separated from the actual costs, meaning that users and managers lose visibility of the real costs of their data usage. This is because the shared data charges are applied to a single user account and not against each user.
This creates a lack of visibility and accountability and means that significant excess usage goes totally unchallenged as it’s hidden from view; and worse, there is often no perceived cost to the data usage at cost centre or user level. If however, costs were applied at a user level, excessive data consumption and costs could be quickly spotted and controlled.
Furthermore, as most businesses typically size their data plan by only looking at the overall usage and not by analysing the individual usage, they inadvertently buy shared allowances that are set at a level which includes large amounts of excessive usage; which in turn locks in high levels of unnecessary costs.
In many cases, future increases in the allowance are also based on this simple aggregated view. With businesses often assuming that increases in the aggregate data usage are the result of a general trend for increasing data consumption, whilst not realising that the actions of a few are actually driving the need for increased allowances and the associated costs. Based on Utelize’s analysis of many businesses with shared data, it is not uncommon to find that the Top 1% of users are generating 20-30% of all usage.
Initially this exceptional usage is not recognised as a problem as the ‘shared Data’ is normally sufficient to cover the aggregate usage and the business perceives it is making cost savings vs the previous model. However, it’s not uncommon to see businesses needing to quickly increase allowances or to start incurring excess data charges when this usage exceeds the share data allowance, which leads to rapidly increasing costs.
Challenge 4: Increasing Shared Allowances
When businesses start to exceed their allowances then the challenges and hidden costs start to really kick in. There are two main issues that we consistently see relating to increasing data allowances – the first is ‘upwards only amendment clauses’ and the second is large incremental allowance increases.
‘Upwards only amendment clauses’ often apply to shared data and mean that if your business wants to increase its shared data allowance to meet increased usage, then that allowance cannot be reduced again during the term of the agreement – essentially locking in the additional costs.
The increment by which data allowances can increase is also a significant item to be aware of. As the level of shared data increases, often so do the increments by which the shared allowance can increase. For example a 100GB allowance may need to increase to 150GB as the next increment – often creating a 50% immediate cost increase, whereas a 1TB pool may increase in 500GB increments, representing a very large increase in monthly costs.
So where that increase in usage is actually the result of just a few unmanaged users then it’s not uncommon to see businesses inadvertently lock in the extra cost for the term of the agreement. If however they a) regularly reviewed usage at a connection level and b) negotiated the option for downward revisions, then it would be possible to manage the usage down and in the process also bring the costs back under control.
Challenge 5: Shared Data is Expensive per GB
As shared data tends to be used more efficiently than bolt on data and on the whole it also reduces excess data charges, the mobile networks typically charge a higher rate per GB for shared data to make up for this lost margin. Typically charged data is between £5 and £10 per GB of shared data, however it varies considerably depending on the other rental charges.
Many businesses don’t look at this cost per GB when calculating their future costs, and few businesses model the impact of growing data usage. As a result they don’t recognise the real cost of shared data, especially for high volume users or inevitable future increases in usage.
Shared data tends to work best for users with consistent levels of low to medium data usage – for example users with up to 2-3GB of monthly usage. However even at the higher end of this range it is easy to see that shared data actually can be relatively expensive (e.g. 3GB at £10 per GB = £30) compared to traditional bolt on data.
For individual users with a consistently large business data usage then it is actually much more cost effective to remove these users from the shared data pool and to apply individual data bolt on’s. Take for example a user generating 10-20GB of data usage on average per month – on shared data their real allocated cost would be at least £100 and as much as £200 per month, however this would probably be around £20-£30 per month on a standalone plan.
This tactic becomes significantly more important for business to consider before upgrading their shared data allowance, and may negate the need to upgrade the shared allowance at all, generating significant cost avoidance savings in the process.
Challenge 6: Over Specifying Data Allowances
Finally, it is not uncommon for businesses to over specify the shared data allowances in anticipation of large future usage increases. Whilst it’s good to consider the impact of future increases, businesses should avoid the temptation to rush into excessive large data allowances. This locks in excess costs and typically these allowances cannot be reduced in the future. The networks refer to this as “under-utilisation” and it’s a significant profit generator for them.
Often; we see businesses with 50-100% headroom on their data usage which simply locks in unnecessary costs over the term of the agreement. Instead we recommend allowing for 10-20% headroom vs peak usage and negotiating flexibility to increase or decrease allowances, and then to put in place a is a strategy to manage mobile data usage on an ongoing basis.
Whilst shared data provides a much better option for most larger businesses, there is often room to optimise costs both initially and over the term of the agreement by combining shared data with proactive data usage management, flexible contracts and the tactical use of data bolt ons for specific high-volume users.
In many cases this can reduce overall costs by between 10 and 20% and as data usage increases in the future it will provide your business with the ability to better control costs.
Shared data does however create cost allocation challenges especially for businesses with no central mobile budget and it removes visibility and user level accountability for data costs. This can quickly lead to un-budgeted and increasing mobile costs that become difficult to control without the foresight to negotiate flexible terms in contracts, so factor these challenges into account before entering into your new contract.
About Utelize Mobile
Utelize specialises In supporting large businesses manage their mobile costs, usage, contract negotiations and mobile device requirements – helping to reduce costs, freeing up our customer’s IT and Finance resources whilst helping to secure mobile devices and data.
To learn more about including Utelize as part of your mobile management and negotiation team get in touch.