Telco Costs Had to Rise

It is hardly a secret that telecommunications costs are increasing, especially in the mobile space. Both consumer and business plans are more expensive, they include less (especially data), and they no longer provide such lavishly subsidised handsets. Here at Dog and Bone we don’t necessarily like this any more than you do. But, I would argue, it had to happen.

Dog and Bone has maintained for years that the current trend of cost reductions was not sustainable, having attained a point at which mobile call rates were almost unprofitable for the providers. The margins for telcos had become razor thin and additional revenue would need to be freed up somewhere else, if record profits were to be maintained. (The problem with a record profit is that the record becomes a new baseline expectation for shareholders.)

Telcos are generally willing to sustain some losses in periods of customer expansion, either through very low rates or generous hardware inclusions. Getting new customers is worth a small loss, if you can then keep them. Unfortunately the Australian mobile market is now approaching approaching saturation point. There are now almost as many active mobile connections in Australia as there are people. The smartphone revolution – which brought in great swaths of customers who’d never wanted a mobile phone before – has now matured and new connections are tapering off.

Several years ago we suggested that the downward trend in customer service was a reflection of this. In the business space, fewer and fewer account executives were obliged to service the needs of more and more customers, and those AEs were increasingly being forced to perform a sales role. Our clients were giving us feedback that they only ever heard from their telco when contracts were up for renewal, or when an opportunity emerged to be upsold.

Things were even worse in the consumer space. The telco industry was held in lower regard than any other industry in Australia, and had become a byword for appalling service. The TIO periodically released figures to show complaints levels were soaring, until it got to the point that even the government regulator was forced to pay attention. ACMA threatened that if the industry didn’t lift its game there would be regulatory consequences. Vodafone’s woes have been amply documented, but we shouldn’t forget that they were the only company held in low repute. Recall that one of David Thodey’s first commitments when taking over at Telstra was to lift customer service levels (he has been very success in this, according to available figures). The public backlash had arrived, and the industry was forced to respond.

But lifting customer service levels doesn’t come cheaply, and nor does deploying upgraded networks. All three major telcos now boast an LTE network, and all had an initial commitment to charge the same price for 4G data services that they had been for 3G. They were willing to absorb the costs for a while in order to attract customers. But it wasn't sustainable, and it couldn’t last. Prices had to go up, or value had to go down. Or both.