Bond prices and wireless phone minutes

This is likely to be my nerdiest post yet. I'm going to claim that the market for wireless phone minutes is like the bond market. Let's see how that goes.

Like most folks who begin to learn about investing, I used to have trouble with the notion that bond prices are inversely related to yield. I always thought, if yields go up, shouldn't bonds be more valuable? I finally realized that they're talking about old bonds. Duh... why didn't you say so? So now I get it. That old crappy 4% bond I bought yesterday is worth less, because you can get that shiny new 5% bond for the same price today.

I never thought I would mark to market my prepaid cell phone minutes, though.

All my posts seem to be pimping a product. I don't mean for it to turn out that way, but oh well. Today's is Page Plus Cellular. When I was tired of Verizon ripping me off (the latest thing was charging me for data I'm not using), I looked for a prepaid service. Bonus points for one where I can use my same phone. Page plus was it. I could get my minutes for about 6 cents (cheaper than every other prepaid provider) and my wife could get unlimited calling for $40 per month.

For my phone, I plunked down $80 for 1400 minutes. (Buying the highest value refill is how you get the cheapest minutes. I expected those minutes to last 7 months.) In those days, if you put $80 on your account, they credited you for $84. That way, you'd actually get 1400 minutes at 6 cents per minute. So actually, minutes were about 5.7 cents.

Four months later, I'm using even fewer minutes than I expected. I still have $62 on my account. Then they go and lower their price to 4 cents per minute.

That's great news, but the minutes on my account cost 6 cents, still. Why? Honestly I don't know. But now I know that those 62 dollars in my account are not worth $62 anymore. Those 62 dollars can buy 1033 minutes, but someone buying new minutes with $62 will get 1550 minutes. (Actually, they have to buy 2000, but you get my drift.)

How much is my 62 dollars worth? Enough to buy 1033 minutes at 4 cents each. $41.32. Hey, that's just like inverse bond pricing. The "yield" of minutes per dollar went up, so the value of my account went down.

The surprising thing is that when Page Plus lowered their minute prices, I actually lost money. There's no point in thinking that I'll just use up my minutes at 6 cents each. That's just mental accounting. My minutes are not worth 6 cents, because each one I use will be replaced for 4 cents. That means what actually happened is when they lowered their prices, my account lost about $21.

That's sort of like interest rate risk. I bought up all these minutes thinking they were a great deal, and then the deal got even better (for people that hadn't bought any yet).

When will I not care anymore? Well, the "maturity" of my wireless refill is whenever I run out of minutes at the 6 cents rate. At the rate I'm going (about 100 minutes per month), it will be another 10 months before I can enjoy the new lower rates. 11 months after the rates actually lowered.

That's weird.

Just about as weird as bond prices.

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