The 3 Ways Cap Plans Have Gotten Worse

Do you think your phone cap plan is not as generous as it used to be? Well, you're right. Cap plans are both more expensive and provide less value than they used to. This applies to both consumer and business plans.


Australian telcos giveth and they taketh away, although you'd be fooling yourself to believe these transactions are ever equivalent. Telcos taketh freely, but giveth only grudgingly, and too often only under direct threat from the ACMA and the ACCC. The newly implemented Telecommunications Consumer Protections (TCP) Code is a good case in point. Even though it is fairly toothless legislation, even in its blunted form it had to be extracted virtually at knife-point by the regulator. The threat was that if this industry wanted to continue regulating itself (in the area of customer service) then it needed to agree to a code that was worth the paper it had congealed on.


A requirement of the TCP is that all Australian telecommunications providers must supply unit pricing on all mobile phone plans. A consumer can now see just how much a two minute phone call will cost on a given mobile plan, or how much a megabyte of data will cost. The idea is that plans can more reliably be compared. Another benefit of unit pricing is that even an average customer can now easily see that mobile phone plans are much worse than they were only a year ago. This has happened in three main areas:


1. Data Inclusions Are Much Smaller


Telstra and Optus have both unveiled and then expanded new LTE '4G' networks this year, and are currently in a race for market share. Now, for those of you who are reading a telecommunications blog but somehow don't know this, 4G is seriously fast. You can expect downstream speeds of 30-40Mbps, far exceeding the speed of ADSL2+.


All this speed is great, but it isn't worth much if you have little data to use. It simply means you could tear through your already paltry data inclusions in minutes, and then start enjoying the immense benefits of PAYG data rates, which would become apparent when your monthly bill arrived and features a total only expressible in scientific notation. The telcos have responded to this obvious issue - collectively termed 'Bill Shock' - by lowering their data inclusions by an average of 30%. This is true of all telcos, including Vodafone, which doesn't even have a 4G network. To take an example, an old $59 cap on Telstra included 1.5Gb of data per month. The new $60 cap gives users only 1Gb. At 4G speeds, you can chew through that in a matter of minutes. 


There's always the option to buy an additional data pack for some added headroom. Unfortunately, either the price on these has increased in the last 12 months (Telstra) or the data inclusion itself has gotten smaller (Optus and Vodafone).


When quizzed about this obvious loss of value, the providers have all responded with a variation on the theme that they are providing greater flexibility for their customers. That is certainly one way of looking at the practice of charging extra for goods and services that were previously included for free. They claimed that most of their customers weren't using anywhere near the included data amount, with the implication being that those users shouldn't have to subsidise the needs of heavier users. I am sympathetic to this argument, but in this case it is misleading, since the cost of the plans themselves hasn't gone down at all. The 'light' users are still paying the same.


The real goal, aside from a desire to increase revenue, is to alleviate network congestion, which sees many mobile networks slow to a crawl in metropolitan areas at peak times. 


2. Call Inclusions Have Also Gone Down


As with data, the included call credit in most cap plans is now smaller than it was. A cap that once gave you, say, $800 of credit will now only include $650. This isn'tquite as big a problem, for a couple of reasons. 


Firstly, in most cases users do not get anywhere near their call limit. Secondly, if you do exceed your call limit, due to the cheaper nature of phone calls, and the way they are made, it is very unlikely that you'll run up a truly extravagant bill. Bill shock is generally due to data and premium services, rather than calls (the exception is international calls). Thirdly, this decrease in credit has been partly offset by many caps now including unlimited SMS, and, in an increasing number of cases, unlimited calls. Nonetheless, the value has gone down, and it's hard even for a telco to sell this as flexibility.


Meanwhile Telstra has gone the other way and increased the cost of the actual calls. Calls on cap plans were already ludicrously high (that's why they give you so much 'credit'), averaging around $2.15 for a two minute call (35c flagfall + 90c per minute call rate). Telstra has raised its call charge to 40c flagfall and 99c per minute, which means a two minute call will now cost $2.38, an increase of just over 10%.


3. Handsets Cost More


There was a time when you could get an excellent mobile phone included on a relatively cheap cap plan (on a 24-month contract), such as an iPhone 4S on a $49 cap. Those days are gone. In the telco's defence, these handsets were often being sold at a loss to them, in order to attract customers. It was, arguably, unsustainable from their point of view. You can still get the same latest-generation devices, but you will have to pay extra each month. For example, you can obtain an iPhone 5 on an Optus $60 cap, but you'll have to pay an extra $10 per month for it. 


Telcos argue that $240 (24 x $10) is still a wonderful price for an iPhone 5, but that's entirely misleading. The monthly charge used to account for the handset value. $60 would include a monthly handset payment as well as call and data inclusions. Now it doesn't.


In the interests of flexibility, which we apparently cannot get enough of, some caps are available in a BYO form. A BYO plan doesn’t provide a handset at all, but costs less each month, and features slightly more inclusions. Telstra in particular has grown infatuated by this model. Their BYO plans are all $10 cheaper than plans that include devices.


Why Has This Happened?


The reasons for this wholesale and widespread drop in value are many, and as touched on earlier relate to maintaining certain performance and usability thresholds, as well as stellar profits. There is also the consideration that these new 4G networks aren't cheap to construct and run, and that 4G plans in general were priced the same as previous 3G iterations. 


The other reason is that Vodafone, due to its ongoing woes, has haemorrhaged a large proportion of its customer base, most of which moved to Telstra or Optus, although some have bled off to smaller carriers. It is no coincidence that these are the two providers that have reduced their cap values the most. The market is in a part of the cycle where the focus has moved away from attracting customers, which invariably is the part of the cycle where prices go up.