Proration Is Your Phone Company Trying To Screw You
How many of you have signed up for phone service, opened up your first bill and said a couple of words the kids asked you to explain?
It’s called “Proration” and it can happen to you. Other services like your local cable provider or internet provider will also prorate your charges. What you conception was going to be a bill for 39.99 may waste up being 95.59. How did that happen?
Proration is a per day rate based on your monthly billing cycle. And why you are being charged more than the regular monthly fee is that you started a new service in the middle of that billing cycle.
Have I lost you yet? Because this drives customers nuts.
PRORATED CHARGES
Let’s do an example. Say your billing cycle closes on the 27th of each month and you decide to add a new feature: a 5.99 text messaging package. The customer service representative recommends you add the package on the 28th when your billing cycle starts over, but you insist that you need the text messaging right now. And right now is the 20th.
The operator reluctantly agrees and he or she should warn you that on your next bill you will see prorated charges. This proration will be from the 20th to the 27th or a total of 8 days. Shouldn’t it be 7 days, you’re thinking to yourself? 27 days – 20 days = 7.
That’s not how your phone company is going to count proration days, by subtracting one number from the other. Try this way. Count the following days (the actual numbers) and see how many there are: 20, 21, 22, 23, 24, 25, 26, 27. It comes to 8 days. That’s because you have to count the 20th as a day so subtraction doesn’t work, or you can use subtraction but add one day.
Have I confused you. Want to strangle me? It gets better.
Now that you have the number of days you are being prorated for, which is 8 days, you have to calculate the per day rate. Typically, phone companies take your monthly recurring charge and divide by 30 days or what they think to be the average number of days in a month. This is true even if the month you’re in has 31 days.
So assume 5.99, your monthly feature charge for text messaging, and divide it by 30. What do you get? A very long number! I’m going to round up which makes it .20. Your per day rate = 20 cents.
Now you have your prorated days and your per day rate. This gives you the ability to find out your prorated charge for adding a unusual feature in the middle of your billing cycle. Take your prorated days which we determined to be 8 days and times it by your per day rate which we determined to be 20 cents. 8 x .20 = 1.60 .
That was an easy one. Right?
Now what about that broad bill you view was going to be 39.99 and ended up being 95.59? This is where we get into proration combined with advanced billing.
Most service providers charge you your monthly fee in advance. If you started a cell phone service exactly on your bill cycle start date you would see 39.99 plus one month in advance for another 39.99. Any usage charges (such as going over your minutes) are not charged in advance–there’s no way of knowing what those charges would be obviously.
Then on top of that there is usually an activation fee that ranges from 25.00 to 100.00.
TIP! Always see if you can get an activation fee waived. I did this with a Dish TV provider who knocked on my door because I told him I wasn’t interested in paying for activation. He called his boss and the fee was eliminated on the state. It’s best if you can talk to a sales guy making a commission, they’re the ones who most likely have the ability to waive fees. Minimum wage teenagers tend to stick by the rules.
So here’s what the charges look like on your first bill:
1. Recent monthly charge
2. Advanced monthly charge
3. Activation fee
4. Prorated charges
These all add up, and we’re not even touching upon the “BS” charges the telecoms pass on to the customers because of The FCC and other mindless government charges.
Let’s continue with the 39.99 example for someone starting cellphone service and receiving prorated charges. Your bill cycle ends up being the 30th of each month. The salesperson asks you to wait to start your service on the first day of your bill cycle, the 31st or in the case of a month with only 30 days it will be the 1st. As usual you can’t wait; you need to start service now and that means starting in the middle of your bill cycle on the 11th. Man, are you impatient!
To figure out the proration, as we did with the previous example, first find out how many prorated days you will have. Remember you can’t simply subtract 30 from 11, you have to count the number of actual days. That will be: 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, and 30. That comes to 20 days.
Second you need to figure out the per day rate. Remember that the per day rate is normally the monthly charge divided by 30 days. Your monthly charge in this case is 39.99. 39.99 divided by 30 = 1.333, or rounded down 1.33. The per day rate is 1.33.
Then take your per day rate and times it by the number of prorated days. 1.33 per day rate x 20 days = 26.60. This is your prorated charge.
But you’re not done yet figuring out this bill. You also have to add on the advanced monthly charge, and the activation fee (if you could not get it waived).
26.60 prorated charge + 39.99 advanced monthly charge + 30.00 activation fee = A total of 95.59!
We will acquire that you did not go over your minutes and that any additional charges are government related.
PRORATED MINUTES
Oh? Did I mention that companies will also prorate cellphone minutes? Policies differ from provider to provider but in many cases when you make a rate plan change in the middle of your billing cycle they do prorate your minutes similar to how they prorate your monetary charges.
This means they will figure out how many minutes your allowed per day until the end of your billing cycle and you can go over your minutes by using 700 minutes even though you just purchased a plan for 1000 minutes a month.
Huh?!
Let’s go back to the 39.99 monthly charge example from above. Let’s say that 39.99 buys you 1000 anytime minutes every month. However, you started your plan on the 11th and your bill cycle ends on the 30th.
We go back to finding out how many prorated days that equals which we now know to be 20 days according to our previous calculations.
Then we find out how many minutes are allotted per day. Steal 1000 minutes and divide it by 30 days. 1000 / 30 = 33 minutes (rounded down). Our per day allotment is 33 minutes.
So for our prorated minutes how many are you allowed on this plan until the kill of your bill cycle; from the 11th to the 30th? Take your prorated days and times them by the per day allotment. 20 days x 33 minutes = 660 minutes allowed. Any minutes used over that will result in overage charges.
That can add up and overage is where most customers call in to complain because they thought they were under their minutes. In this example we said you used 700 minutes and were allowed 660 prorated minutes. Subtract 700 from 660 and you get 40 overage minutes. Let’s say your overage charges according to your rate plan are 30 cents a minute. 40 x .30 = 12.00.
Not too bad in this case but imagine if you changed your rate plan nearer to the 30th, say on the 28th. How many prorated minutes would be allowed then?
Prorated days would be 28, 29, and 30 equaling 3 prorated days. Your per day allotment is already established at 33 minutes. 3 prorated days x 33 minutes = 99 minutes. That’s all you can use for those 3 days, 99 minutes!
Then of course your long lost best friend calls you on the 29th and you talk for 4 hours to catch up. 4 x 60 minutes in an hour = 240 minutes. On the 30th your grandma dies so you talk to your mother for another 3 hours. 3 x 60 minutes in an hour = 180 minutes.
You’ve used a total of 240 + 180 minutes which equals 420 minutes. How many prorated minutes were you allowed to use before the start of your next bill cycle? Oh yeah, 99 minutes. You are now 321 minutes over. Your overage charge is 30 cents so 321 minutes x .30 = 96.30. Ouch, that hurts.
Hopefully by this time your head is not spinning. Proration is not easy to understand, especially for those of us who are not “math-inclined.” I never did well in math in highschool because I kept asking what it all was for. The teacher never gave us realistic applications.
If only she could have told me that in the future I would be using it to figure out my phone or cable bill, then maybe I wouldn’t have ended up in that year of summer school…Nah, I smooth would have done poorly. When you’re a kid you don’t mediate about bills. Those are adult headaches.
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Filed under Small Business Cell Phone by on Nov 1st, 2011. 