Tuesday, 17 July 2012 12:06

TCP, ACMA, and mobile pricing

By David Werdiger

The telecomms industry has dodged a bullet with the acceptance by ACMA of the updated Telecommunications Consumer Protection Code (TCP) by ACMA. The self-regulation body Communications Alliance has responded to calls for improved consumer protection with some significant improvements. New standards will apply to information provided to consumers, how products are advertised, what is presented on the bill, and complaint-handling procedures.

 

In the tradition of the nanny-state, service providers must now protect their customers from spending too much money through a system of regular spend management alerts. These were already being implemented by many providers as a service, and as a way to pre-empt the complaints that often result from overspending; a standard across the industry is certainly a big improvement and will help educate customers in controlling their spending habits.

I was particularly pleased to see the attention given to the “evil” cap plans. These are surely one of the nastiest beasties to have been set upon mobile customers. Preying on customers’ fear of overspending, these plans turned traditional costing analysis on its head, with many customers on plans that were way too high and penalizing customers for spending too much. For providers, the margins for high spenders and low spenders were almost obscene, and the representation of value ($500 worth of calls for just $29) was almost deceptive. These plans won’t go away, and in many cases have been superseded by “unlimited” plans. The TCP goes some of the way to help customers understand what they are getting for their money.

One of the areas AMCA wanted addressed was standardisation of pricing. They have had success in having supermarkets put unit pricing on every item. It is now easy to decide whether the 2L or 1.25L bottle of Coke provides better “value” (although deep down I still know that most of the $3 or more that I pay goes to expensive advertising campaigns). The challenge was to do something similar in the world of telecommunications pricing, and this is one area where the TCP unfortunately cannot and will not be effective.

Mobile pricing is a black art, practiced by boffins who think in Microsoft Excel, who understand more about the way you use a phone than you ever will. The sole mission of these pricing experts is to design ways to extract money from you without you understanding how or why. The counter-intuitive and deceptive pricing of capped plans is just one of the “innovations” that have come from the hallowed cubicles of these pricing experts.

Why? As the customer for our very first billing system used to say (way too often) back in the mid 1990s, “two tin cans and a piece of string”. At the end of the day, all the mobile carriers and service providers are selling the same thing: the ability to make a phone call from one person to another. There is some differentiation in network quality (or at least perception of it), some value-added services, and some providers have better customer service, but really, they are all selling the same thing.

So in a mature commodity market, what’s a poor mobile service provider to do? Use every trick in the book to confuse the customer, of course. Ensure that their offer is stated in terms that make it impossible to compare with others. Give away a shiny new handset so the customer doesn’t even look at, let alone understand, the true monthly cost (like how much use they can get for that cost). Put customers on contracts so they are locked in, and offer them another shiny new handset to roll them into the next contract. And bundle, bundle, bundle. That makes it even more difficult to compare offers. It’s the supermarket equivalent of asking you to choose between a bottle of Coke and a kilo of flour, or a bottle of Pepsi and a dozen oranges.

The TCP has gone some way to address this problem with the “critical information summary” which informs prospective customers of key attributes of a plan in a standard way. One of the elements of this is the cost of making a 2-minute call, and the number of 2-minute calls that can be made per month for the plan fee. This is the closest thing the TCP comes to the ideal of unit-pricing mandated by AMCA.

However, the nature of mobile and telecoms pricing is that it will not succeed. The “standard 2-minute call” is like the Yeti, the Loch Ness monster, and the silver bullet. It doesn’t exist.

The customer calling profile – the average length of calls they make, and the distribution of those calls (e.g. so many shorter ones, so many longer ones, etc) – is the lifeblood of pricing experts, and is too complex to be standardized in the way proposed. One possible solution might be to develop a series of standard call profile – much like the “basket” of products used in CPI calculation or in the calculation of share market indices like the ASX200. But there are just too many tricks in the pricing experts’ playbook to be defeated by a measure like this. Pricing will simply evolve as it has in the past in response to market and regulatory forces.

Despite some limitations, the new code goes a long way to helping customers be more informed and better protected from deceptive industry practices, and themselves. Self-regulation is certainly the best option for the telecommunication industry; only experienced industry people understand the landscape sufficiently to monitor and police it.

David Werdiger heads the pricing consultancy for Billing Bureau, a leading provider of billing systems for telecommunications and subscription services.

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