Reforming mobile phone pricing.


I was in a mobile store today. Great deals were available. For only $60 or so a month I could get $700 worth of calls plus a phone under a 24 month contract. What a bargain!

As a commentator on an earlier blog noted, this is all ‘funny money’. The mobile company sets ludicrously high call charges and then says that you can get a great big discount for a fixed fee. Presumably someone, somewhere, sometime actually pays these high prices. If not, then the mobile companies would appear to be violating the Australian Consumer Law. After all it is illegal to represent a price that no one has recently paid as a ‘was’ price in a ‘was-now’ discount price advertising campaign. So presumably it is illegal to advertise a bundled price when no one has recently paid the relevant component prices.

Even so, these pricing practices appear dubious. Section 18 of the law states that:

(1)  A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Advertising inflated ‘packaged’ prices could be construed as misleading.

An alternative would be packages based on call minutes (either on net or off net). At least then consumers would know what they were buying.

p.s. apologies to the earlier commentator – I remember the comment but am blowed if I can find it.



12 Responses to "Reforming mobile phone pricing."
  1. Generally the people paying the high rates are the low volume pre-paid customers.

    Just be glad that the Australian mobile phone market is much cheaper than the Canadian one. Plus in Canada it is standard practice to get charged for incoming calls too (which makes marketing calls all the more annoying).

  2. I think if mobile companies were required to include a ‘comparison call price per minute’ that tells people what the actual rate would be in the $700 worth of calls of $60.

    That way, you would actually see the effective call rate decline with bigger cap plans, and see how many minutes you get at that cheap rate.

    A bit like unit pricing that ALDI has always had. 

  3. Why can the company not quote a total number of minutes per day or per month for the monthly cap – without even touching the issue that they are still able to call a “floor” a “cap”!?

    More to the point, as an economist can you please explain to me why mobile copnaies are not forced by the market to be more transparent? While I am on a roll, why am I not simply charged a fixed fee per Gig by my ISP?

    You could make a great Python sketch around other sections of the economy charging for resource use in this arbitrary manner.

  4. Whirlpool used tomhave a comparison spreadsheet which gave effective rates for all plans and providers. Too complicated on iPad here to find it and post.

    I used it a few years ago and signed two phones up with virgin beancounter as a result. For around $20 min a month I get what most pay $70 for and I can auto top up if needed.

    The bankruptcies and huge bills are nearly all a result of going over a “cap” and racking up extortionate charges that kick in. Very dishonest pricing and selling.

  5. Stephen, given your previous experience at the ACCC, do you have much hope that issues like this (and others that you have blogged about since your move back to academia) will ever be effectively resolved?

  6. @chris: quoting the number of minutes is not as straightforward as it would seem. For one thing, the ‘value’ of a minute can vary across peak and off-peak calling times. Also, when the service provides multimedia and text as well as calling, there needs to be some conversion between different types of data, and it is not obvious what the conversion rate should be.

    The Dilbert comics capture this business model well in their discussion of confusopolies (sp?)

  7. I can’t figure out if mobile companies are trying to get you to sign up for an expensive cap with vastly more included value than you need, or one with vastly less so you end up paying more when you breach it, I suppose it works both ways. The whole cap system seems to be misleading and creates significant headaches when trying to compare packages from different companies, it is simply beyond many consumers to be appropriately informed.

  8. It is a good point.

    I am having a debate with one of the group buying companies at the moment. I bought a meal through them where they claimed $120 value, and when you add the prices up on the menu in the restaurant, it is worth $90 at most. The group buying site says “take it up with the restaurant” and the restaurant says “take it up with the site”.

  9. This is total rubbish isn’t it!

    On my blog we’ve had a go at looking at visualising the mortgage bill: 

    The phone bill is ripe for the same treatment.  And the first thing to do is get rid of the $ on calls and put in the units and how they relate to each other.

    I got a ‘redesigned’ bill from Telstra the other day.  Complete crap.

  10. The thing is, once you’ve used up all your “funny money” (i.e. your cap), your extra calls are still charged at the same rate. So anyone who’s ever exceeded their cap will have paid these not-so-funny prices.
    Example: Say you’ve paid $20 for $400 of funny money and 80c/min phone calls – call minutes 1-500 cost you nothing (or 4c/min of actual money, if you like), while call minutes 501-infinity cost you 80c/min of actual money.
    Since I’m reasonably confident there are plenty of people who exceed their cap, that would mean that someone, somewhere, does pay these high prices.
    Where’s the line between “misleading and deceptive” and simply “difficult to understand”? I reckon this sort of pricing is bullshit, but it’s not up to me.

  11. @Evan: The conversion rates between different types of data are obvious: it’s the price ratio under the cap plan. E.g. if your calls cost 80c/min and your SMSs 20c, then you can trade 1 min for 4 sms. Easy.

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