Now, it's true: I've been known to criticize law firms and their business models on this page and elsewhere. But I'm also no kind of fan of cellphone companies. I've been an iPhone user since the day the phone dropped, and my biggest complaint has always been AT&T's coverage. Before that, I (like many iPhone users) had Verizon, which had better coverage but questionable customer service. Also, like most people, I can't stand being locked into a two-year contract for anything. I have a mortgage, an office lease, and a marriage: that's plenty of long-term commitment for me.
Cellphone pricing has caused many to scratch their heads, or even bang them on their desks. Saul Hansell's finely reported and written article in Sunday's New York Times goes a long way to making some sense out of them. Saul's piece is called "Is There a Method in Cellphone Madness?" and the answer, he finds, is yes.
If you want to understand how the cellphone companies come up with their pricing and how they make their profits, you should read the article. But my main interest is in law-firm pricing, and there was one section that jumped out at me.
As you know, lawyers are obsessed with how much their services cost. (See "Hourly billing: the end of the beginning.") They claim that their inability to figure out what a particular case or matter costs makes it impossible to offer fixed prices. This notwithstanding the fact that law firms' costs are generally fixed: associates' salaries, other payroll, leases, insurance, and so on. Just because a case takes more work does not mean that it costs more to the law firm.
But it turns out that cellphone carriers also have no idea what their services cost. Saul explains:
In many ways, however, the least important factor in setting prices is the actual cost of providing cellular service. Cellphone companies resemble airlines, that other industry whose oblique prices exasperate consumers. Think of a cellphone network as one giant airplane that costs tens of billions of dollars to build. The cellphone companies don’t really know how much it costs to handle a call to Aunt Suzy in Syracuse, any more than an airline can calculate a specific cost for Seat 12B.
“Service providers don’t have a good measure of their costs,” said Philip Marshall, an analyst for the Yankee Group. “They don’t have the ability to say if they are going to make money” on any particular plan.
Huh. I hear lawyers say this to me all the time: "If you don't track hours, you idiot [OK, that part is inferred], how do you know if you're making money on a particular case." I tell them I don't. [That's often when they say "idiot" in their out-loud voice.] But I don't need to know that. I only need to know if I'm making a profit on my law firm, not on a particular case or client. Profit equals revenue minus expenses, and there's no earthly way to determine the real expenses for a particular case or client. Even if you bill by the hour.
The phone guys don't seem to have a problem with this. Saul writes:
Put simply, all a phone company wants is to get as much money as possible each month from its customers. Then it hopes that this total is more than its costs.
That sums up the cellphone business, and every other business in the world. For some reason, though, lawyers have trouble understanding that.
Maybe cellphone companies really are smarter than law firms.