service pricing semantics and ontology

Prices for ongoing services often are much less clear than prices for retail-store products that have a price tag affixed to them.  Services do not have a natural physical unit, like an item that you pick up from a shelf.  Compared to a one-time purchase of physical products, an ongoing service purchase has much lower transaction costs for selling with a bundle of prices.  More generally, the shift toward a service economy involves significant changes in the definition of prices and the communication of price information.

Consider my telephone bill here in Arlington, Virginia.  In 1994, it contained two local-telephone-company service charges: “Residential line-main-message/measured Service” and “Touch-Tone Service.”  In 2010, the number of local-telephone company service charges had increased to four differently described charges:   “Dial Tone Line,” “ELS — Unlimited Usage — Flat Service,” “Residence Local Usage Package Unlimited Flat/EAC Rate Svc” and “Sensible Minute.”   I would guess that most telephone customers don’t understand the definitions of these charges and don’t understand how these charges relate to practical service choices that a telephone customer might make.

Charges semantically related to governments (taxes, fees, and other government-related surcharges) look similar to these service charges.   On my 1994 telephone bill, five separate charges related to governments were associated with local telephone service.  In 2010, the number of such charges increased to seven.[1]  Three of those seven charges semantically map directly onto three from 1994.   The remaining four in 2010 have only vague semantic relation to the other two in 1994.   I would guess that most taxpayers don’t understand the definitions of these taxes and fees and don’t understand the democratic political process that generated those taxes and fees.

Discussion of service rates tends to focus on changes in average or representative charges.  In inflation-adjusted dollars, my local telephone service charges increased 6% from 1994 to 2010.[2]    Taxes and fees increased 108%.   Moore’s Law and astonishing leaps in communications technology offer hopes for a new economy.   The average charges on my telephone bill exemplify an old economy.

But in the semantics and ontology of its charges, my telephone bill testifies to new implications of service pricing.  Service prices are not naturally meaningful to customers.  That creates opportunities for web-based bill monitoring services to provide meaningful price information to customers.   To the extent that particular services are subject to a formal, administrative process of tariff regulation, controlling and communicating service pricing vocabulary could be a valuable regulatory tool.  More generally, concentrating government regulation on wholesale services may not be appropriate for modern service economies.   Balancing appropriate government regulation across wholesale and retail services might create more beneficial competition among commercial service-providers.

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Data: Telephone bill comparison, Arlington, VA, 1994 to 2010 (Excel version); US residential telephone rates in urban areas, 1994 (Excel version).

Notes:

[1]  The “Federal Subscriber Line Charge” is included here with charges semantically related to governments.  However, the local telephone company receives the revenue from this charge.

[2]  The FCC’s urban telephone rate survey found that Bell Atlantic’s representative local measured service charge in Richmond, Virginia, in 1994 was $13.59 per month.  However, the lowest charge was $5 month.   My charge was $9.23 per month.  This spread in prices highlights the difficulties of surveying telephone rates.

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