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What Verizon’s and AT&T’s ‘No Overage Fee’ Cell Phone Plans Mean for You

October 11, 2016
Cell Phones, Utilities
what-no-overage-fee-cell-phone-plans-mean-for-you-study
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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

If you have a smartphone with a data plan, you’ve likely gotten that dreaded text alert warning you about reaching your monthly gigabyte limit. When this happens, your data slows to a trickle unless you pay an overage fee.

Even with the best cell phone plan, many of us exceed our data limit. A 2015 Pew Research Center survey found that 37% of smartphone owners use their maximum amount of monthly data at least occasionally, while 15% do so frequently. Those who did go over during one month or more in a year collectively paid their carriers at least an additional $600 million, according to an analysis by NerdWallet and smartphone app My Data Manager, which helps users keep track of their data consumption.

Carriers making changes

Consumers don’t like paying for their data overages, and wireless carriers are listening. In 2014 and 2015, respectively, T-Mobile and Sprint began offering unlimited plans that cut overage fees in favor of slower 2G data once the caps are reached. Over the summer, Verizon and AT&T, the nation’s two top carriers by number of customers, also rolled out plans that trade overage fees for slower data speeds, known as throttling.

If you have a so-called legacy plan, meaning you haven’t switched to one of the new plans, it’s likely you’re still subject to overage fees at the two top carriers. But the study, using data from My Data Manager, found that for the majority of consumers, switching to the new, usually larger data plan isn’t worth it. You’ll typically pay more in higher monthly charges than you would have paid for the occasional overage fee.

To determine this, NerdWallet and My Data Manager looked at the cost of legacy family and individual plans through Verizon and AT&T, and compared them with the new plans. We assumed an average usage of 1.8GB per month for an individual plan and 4.3GB per month for a family plan with an average of 2.4 lines, based on data obtained from My Data Manager. The full methodology can be seen below. Here’s what we found.

The new Verizon and AT&T plans

Verizon and AT&T previously charged overage fees at an average rate of $15 per GB, regardless of the plan. Now, if you activate the “safety mode” in your account preferences for the Verizon Plan, you can avoid data overage fees. After you reach your monthly gigabyte limit, which varies depending on the version of the plan you choose, your data is throttled to 2G speeds instead of getting hit with an overage fee. It’s worth noting this plan allows you to carry over any unused data to the following month only.

AT&T has taken an approach that’s similar to T-Mobile and Sprint with its new Mobile Share Advantage plans. In the event of a data overage, AT&T throttles data to 2G speeds until the next billing cycle, regardless of your plan. It’s automatic, so you don’t have to do anything to avoid overage fees.

When does it pay to switch to the new plans?

If you’re on an average-sized plan and your data overages exceed 8GB per year, choosing one of the new plans will save you money, according to NerdWallet and My Data Manager’s analysis. The individual Verizon Plan will save you money if you have an average plan, even if you never go over your data limit. Otherwise, the new Verizon plans and AT&T’s Mobile Share Advantage plans won’t save you money. In fact, most consumers on legacy plans would be better off sticking to them and paying the occasional overage fee.

Here’s how it breaks down:

Individual plans

For Verizon individual plan holders who use an average of 1.8GB per month, the Verizon Plan is a better deal. Assuming you were on a legacy 3GB data plan before, you can step down to a 2GB plan, which saves $10 per month over the old pricing. Previously, Verizon only offered 1GB and 3GB options. Activate the safety mode, and presto, no more overage fees — though, if you do go over the data limit, the 2G mode is awfully slow. We’ll discuss that in a moment.

Verizon individual plan cost comparison
Overages per YearFees Per Year (Assuming 1.7GB overage)Yearly cost to switch to the most likely new planShould I Change?
0$0-$120Yes
1$26-$120Yes
2$52-$120Yes
3$78-$120Yes
4$105-$120Yes
5$131-$120Yes
6$157-$120Yes
7$183-$120Yes
8$209-$120Yes
9$235-$120Yes
10$262-$120Yes
11$288-$120Yes
12$314-$120Yes

AT&T individual plan holders face a different set of options. For those who exceed their data limit four times or fewer during the year, it’s actually cheaper to pay the overage fees than it is to switch plans, based on the average usage figures we found. This is because consumers who use that average 1.8GB per month and were previously on a 2GB plan would now have to upgrade to a 3GB plan under Mobile Share Advantage — meaning they’d have to pay for an extra 1.2GB that they might not need. (AT&T’s new plans have only 1GB, 3GB or higher options.) And there’s automatic throttling once the data limits are exceeded.

AT&T individual plan cost comparison
Overages per YearFees Per Year (Assuming 1.7GB overage)Yearly cost to switch to the most likely new planShould I Change?
0$0$120No
1$26$120No
2$52$120No
3$78$120No
4$105$120No
5$131$120Yes
6$157$120Yes
7$183$120Yes
8$209$120Yes
9$235$120Yes
10$262$120Yes
11$288$120Yes
12$314$120Yes

Family plans

For those on a family plan who use an average of 4.3GB a month (assuming an average of 2.4 lines per plan), we found that moving to either AT&T’s Mobile Share Advantage plan or a Verizon plan isn’t worth the switch unless you exceed your data limit four times or more per year. Only 3.07% of My Data Manager family plan users fit that description.

A family on a 6GB plan with Verizon for $60 per month has the option to upgrade to an 8GB plan for $70 per month. A family on a 5GB family plan with AT&T for $50 per month would have to upgrade to a 6GB plan for $60 per month if it wanted to switch to a Mobile Share Advantage family plan from its legacy plan. You can save $10 a month by downgrading to a 4GB family plan, with throttling for overages.

Family plan cost comparison (AT&T and Verizon)
Overages per YearFees Per Year (Assuming 2.6GB overage)Yearly cost to switch to the most likely new planShould I Change?
0$0$120No
1$39$120No
2$78$120No
3$117$120No
4$156$120Yes
5$195$120Yes
6$234$120Yes
7$273$120Yes
8$312$120Yes
9$351$120Yes
10$390$120Yes
11$429$120Yes
12$468$120Yes

Watch out for throttling

Keep in mind that, for consumers used to 4G LTE data, throttled 2G speed could be problematic, especially for the 10% of Americans for whom their smartphone is their only access to the internet. When you’re using your phone for everything from job applications to paying bills, 2G is very slow. By comparison, browsing 30 webpages would take 2.8 minutes at 2G speed, while doing the same at 4G LTE takes only one second, according to Verizon.

If you’re not sure how much data you’re using, you can analyze your usage with My Data Manager or one of the other apps available, and then evaluate your needs to make sure you have the best cell phone plan for you.

Daniel Tonkovich is a data analyst at NerdWallet, a personal finance website. Email: dtonkovich@nerdwallet.com. Veronica Ramirez is a staff writer at NerdWallet. Email: vramirez@nerdwallet.com. Twitter: @veraudrey.


Methodology

To estimate the amount that consumers were paying in overage fees, we used data collected over a 12-month period ending July 2016 from My Data Manager, a smartphone app that helps consumers keep track of their data usage and matches their usage with better-priced plans. We first found the percentage of people who went over their data limit between one and 12 times during a 12-month period. Then we took that percentage and multiplied it by the 198 million smartphone users in the U.S. as of January 2016, as reported by ComScore.

We took that number and multiplied it by the cost of an extra 1GB ($15) and the average amount of GBs a user goes over annually (1.7 for individuals and 2.6 for families), as reported by My Data Manager. Finally, we reduced this number to reflect those who are eligible for an overage fee using the estimated market share of AT&T and Verizon (69.4%), also provided by My Data Manager.

To determine whether consumers saved or lost money by switching to Mobile Share Advantage or Verizon Plans, we estimated which plan an average AT&T and Verizon user would have chosen on June 2, 2016, before either carrier switched to their new plan models, and compared them to the cost of the equivalent plan after both companies adopted new models. See table below for comparisons:

Old Plan (as of June 2, 2016)New Comparable PlanPrice Difference
AT&T, $30, 2GBAT&T, $40, 3GB$10.00
AT&T, $50, 5GBAT&T, $60, 6GB$10.00
AT&T, $100, 15GBAT&T, $90, 16GB-$10.00
AT&T, $140, 20GBAT&T, $110, 25GB-$30.00
AT&T, $175, 25GBAT&T, $110, 25GB-$65.00
AT&T, $225, 30GBAT&T, $135, 30GB-$90.00
AT&T, $300, 40GBAT&T, $180, 40GB-$120.00
Verizon, $30, 1GBVerizon, $35, 2GB$5.00
Verizon, $45, 3GBVerizon, $50, 4GB$5.00
Verizon, $60, 6GBVerizon, $70, 8GB$10.00
Verizon, $80, 12GBVerizon, $90, 16GB$10.00
Verizon, $100, 18GBVerizon, $110, 24GB$10.00
Verizon, $120, 20GBVerizon, $110, 24GB-$10.00
Verizon, $175, 25GBVerizon, $135, 30GB-$40.00
Verizon, $225, 30GBVerizon, $135, 30GB-$90.00
Verizon, $300, 40GBVerizon, $180, 40GB-$120.00
We then found out when it would be the best idea for a consumer to switch by comparing the cost of a legacy plan with accrued overage fees to the added cost of a new plan for each case of consumers who went over their data limit between 0 and 12 times in a 12-month period.