Telcos told: Don't charge mobile customers for more than they need

Thursday, 17 September 2020

Many New Zealanders are sticking with mobile plans that are more expensive than they need, the Commerce Commission says.

Telcos are being told to take action to stop customers sticking with mobile plans that are more expensive than they need, after Commerce Commission research found a significant proportion of New Zealand customers are paying for more than they use.

The Commerce Commission has written an open letter to Spark, Vodafone and 2degrees outlining its review of almost 80,000 consumer mobile bills.

It found two-thirds of consumers did not change plans during the 12-month review period.

A quarter could save an estimated $11.60 a month if they moved to a cheaper plan that would still cover their usage.

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The commission said 7 per cent of all residential consumers spent a relatively high amount on mobile services given their usage and they could potentially save an average $48.65 a month.

Tim Barnett, head of Fincap, said the move was welcome.

“Our work suggests that some consumers are significantly overspending on their mobile plans due to transparency and inertia problems in the market,” Telecommunications Commissioner Tristan Gilbertson said.

“We want to see the industry catch up to other sectors, like electricity, where consumers and comparison websites are making good use of the ability to compare usage and pricing.

“We expect the operators to address these issues by increasing the usage information available to consumers and implementing measures to help keep consumers on plans that best reflect their actual requirements. This will improve transparency, empower consumers to make better choices and guard against overspending.”

In its letter, the commission said consumers should not be paying for more than they would reasonably require.

“It seems clear that some consumers overestimate their requirements when selecting a plan and, for various reasons, never go back to revisit this decision in light of their actual usage.

“There is currently no mechanism for correcting this inertia factor that can result in significant welfare losses for consumers and corresponding windfall gains for mobile operators.

“The absence of a mechanism for correcting such ‘overspend’ contrasts with the position where a consumer is ‘underspending’ and various mechanisms, such as out of bundle charges, act to encourage the consumer to spend more.

“Our expectation is that operators will take steps to address this imbalance by putting in place ‘right-sizing’ or ‘right-planning’ measures to guard against overspending. To this end, we would like to see operators more proactively managing the best interests of their own customers, including by monitoring usage against spend and helping to keep customers on plans that best reflect their actual requirements.”

The commission has also encouraged the wider industry to initiate a programme of work on a “consumer data right” so consumers can choose to share their usage, spend and product information with competitors and comparison services to help inform their decisions. This would provide a similar mechanism to that available in the electricity sector.

The commission has asked the industry body, the Telecommunications Forum, to look at an industry-wide initiative in this area. “We’ve identified important opportunities for the industry to step up to improve consumer outcomes,” Gilbertson said.

“We’ll review the industry response in our Retail Service Quality work programme, which is focused on addressing key customer pain points across the industry as a whole, with a view to taking more active measures if required.”

The mobile bill review showed that consumers who proactively managed their mobile plan were better placed to match their usage and spend. The commission is working with advocacy groups to raise awareness and support consumer choice.

“Our work shows that consumers need to ask themselves how much money they could be saving. Most mobile plans can now be changed monthly so it just might pay to shop around to see if you can find a better deal.”

FinCap, the umbrella body for financial capability and budgeting services, welcomed the move.

“It is alarming to see that a quarter of mobile phone users are paying on average $11.60 monthly more than they need to for their mobile phone usage.

“Some people may be able to absorb this extra cost in their household spending, but for others this may mean they fall behind in their payments.

“The consequences of falling behind on mobile bills could include bills being sent to debt collection or that customers experience drops in credit ratings. These measures can be very harmful to vulnerable consumers.”

The commission has asked that individual operators share their plans for addressing these issues, including the timeframes for implementation, and how they propose to measure success, by the end of November.

In a statement, Vodafone said the level of switching between plans was higher than in the electricity sector.

“Customers choose plans for a variety of reasons, and it’s not as straightforward as looking just at data allowances vs usage and price. Some people want free social data or calls to Australia – or certainty they won’t run out of high-speed mobile data.

“We regularly contact our customers to inform them of the best plans available to them, for example, we run quarterly campaigns to inform customers on older post pay plans about our new deals.”

Spark also issued a statement saying it provides monthly information for customers.

“But we’re always looking for ways we can improve our customers’ experiences so, in light of the commission’s views, we will assess with our customers whether providing historic usage for SMS and calling would be valuable for them, allowing for the fact that the vast majority of our plans in market include unlimited SMS and calling.

“It is also important to note that our customers choose plans on factors beyond just data, SMS and calling – including the value added services we offer in a number of our plans… As the Commerce Commission recognised, it is difficult to factor that value into an analysis like this.”