An Honest Plan For Mobile Phone Companies

When you buy a mobile plan, phone companies have a figure in mind. They know how much they want you to pay to recoup their costs and make a margin, so why don’t they just come out and say it?

Instead, they have developed spurious pricing practices that are at best confusing and, at worst, misleading. I believe it’s more a case of the latter — and the regulator should be looking long and hard at how cap plans are sold.

If the product managers and finance folk in the telcos could step back from their spreadsheets for a moment, they could discover a far simpler way to obtain the same margin and revenue, but make the customer feel a lot more satisfied about what they’re buying. To make it easier for them, I’ve suggested a plan of my own — read on.

First, here are the five things wrong with the way mobile plans are sold today.

1. Low price points are there to suck people in Although I’m sure they’ll defend it to the hilt, low-end post-paid plans are there to suck in those people who haven’t worked out the maths. Let’s take someone who buys an Optus $19 plan because it’s cheap, and makes one 10-minute phone call and one text message a day. In a 30-day month they’d be hit with a total bill of $237. Reeling from bill shock you can imagine the conversation with the billing department, who kindly suggest “we’ll drop these costs but it looks like you need to step up to a $59 plan”. I’m not suggesting this is the only reason Optus has this plan, but it would be an interesting question for the ACCC to ask — how many of your customers buy a $19 plan, and how many are still there at the end of their contract (or even in the second month)?

2. Everything is counted in dollars, not time You sign up to a mobile phone cap and you are told how much value is included. You have to open Excel to try and figure out how that translates into minutes. Even then, the flagfall is a significant part of the cost, so the number of minutes depends on the number of calls you make. Why wouldn’t phone companies be honest and turn the inclusions into minutes, rather than a dollar value. They’d have to do away with flagfall costs, but with networks incessantly dropping calls that only seems fair anyway. Why should I pay another 35 cents just because my network provider disconnected me?

3. Included value is meaningless and dishonest Here’s another question for the ACCC to ask any of the mobile phone companies: what proportion of your billed calls are charged at 90 cents per minute? That’s how much Telstra and Optus profess to charge, but of course we don’t pay that because it’s included in many hundreds of dollars of value wrapped up in the capped plans. Is it ethical to say $1,200 of calls are included, if hardly anyone ever pays for calls at the rate that that value is derived from?

4. Pricing is based on fear Just like ISPs in the early days of the internet, pricing is based on fear. The spreadsheet jockeys basically say, “if you join a plan that makes my business case work out, I’ll give you lots of usage” — more than likely, unlimited usage. But “if you spend less, I’ll hit you with astronomical charges”. You are so worried about the excess you sign-up to the higher plan. Not only does this approach treat customers with disdain, it can also slow usage down for those who aren’t on the higher plans. That’s not smart business sense. As an aside, I’ve always wondered why they are called capped plans when the opposite is the case — perhaps that’s another question the ACCC could ask.

5. Unlimited plans could flood networks When it comes to mobile voice, in the fight for competition, phone companies are offering unlimited calling beyond a certain level — basically $79 for Optus and $99 for Telstra. Or you can get it all for $39 if you buy from Amaysim (cheaper, in part, because the Optus and Telstra plans have factored in an allowance for a handset subsidy), which means customers can now use their phones with complete disregard for network usage. Admittedly, the real concern these days is the level of data usage, but do relatively low cost unlimited plans really stack up, or is it a case of network providers desperate to add value and just praying that customers use the network sparingly.

These figures are based on data from each company’s website. Every effort has been made to check the accuracy, but you are advised to do your own research before making a purchase decision.

This table shows the cost of phone calls and SMS charges for cap plans on Telstra and Optus. I have also included the pay-as-you-go option for Amaysim, which tried to simplify pricing with a 15-cent-per-minute call cost, without flagfall. They have now introduced a $39 all you can eat offer, which sounds too good to be true; if they can provide a service at this level, using the Optus network, you have to wonder about the margins being made by the other players, including Optus itself.

I’ve included an offer of my own: the Dobbie 700. Here’s the deal: 10 cents per minute, no flagfall, with a minimum of 700 minutes usage per month (basically, 25 minutes per day). In other words, you’re up for $70 per month, but if you go over the 700 minutes included, the call costs are just 10 cents per minute — sounds a hell of a lot better than 90 cents per minute with a 35-cent flagfall doesn’t it?

With the Dobbie plan the telco gets the sort of revenue it wants from the customer, but the user is incentivised to go over the monthly limit, knowing the excess is not too horrendous. If the $70 price point is too high, simply lower the number of included minutes. Ironically, the low 10-cent-per-minute call cost is better for the telco in the long run because the network is protected from the excessive usage that could be experienced with unlimited plans.

The alternative, pay $79 to Telstra for $1,200 worth of calls, calculated at 90 cents per minute, with a 35-cent flagfall. Err … excuse me?

First published on CBS News

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