Decoding mobile phone plans in Australia

I lived in the US for three years where mobile phone plans are simple and easy to compare. For starters they sell plans by the minute. When you sign up for a plan you agree to pay for number of minutes per month. Go over your plan allocation and they charge you a nominal amount extra per minute. Easy and simple.

I have just checked the Verizon Wireless US website and six years on its still that way. Their cheapest individual plan is $39.99 per month for 450 minutes month. Go over and they charge you 45c per minute. No flag fall, no 1 minute minimums – you just pay for what you actually use.

One thing to note is mobile phone users in the US pay for all calls made to or from their mobile. So when they quote minutes they mean actual minutes spent talking on your phone. Thats because mobile phones in the US are given a local city prefix based on where you live so callers have no idea they are calling a mobile so they can’t really be charged for it.  You as the mobile user pay for it instead. Its a good and fair system.

Where the US mobile system falls down is its fragmented markets and technologies. Australia is currently heading the same way but in the US there is far less compatibility between handsets and carriers and you are often out of range if you travel out of your home region.

Back to Australia and the stupidity that our lame regulators let our Telcos get away with. There is simply no way any mere human can understand all the ins and outs of a mobile plan. First you have caps that aren’t caps, flag falls, per 30 second charging, rounding up to the nearest 30 second or 1 minute block, unlimited caps that are limited, contract fees for handsets, connection fees, disconnection fees and so on. Its no wonder mobile Telcos are consistently one of the most complained about industries to ACCC and we have to have a dedicated ombudsman to deal with all the issues. There are all sorts of horror stories on the Internet about adults (not kids) running up huge bills due to global roaming, unwittingly going over a cap, or mobile broadband. Sometimes you have to wonder about people’s ability to read a contract and understand what they are agreeing to but I put a lot of the blame on the Telcos themselves. I believe they are being deliberately deceptive in order to fool consumers and charge them way more than they ever expected when they signed up.

Why is it that none of the major telcos offer a simple per minute plan like their counterparts do in the US? They could you know, they just choose not to as it would be way too simple for consumers and make it too easy for them to actually compare plans and then we’d have the Telcos worst nightmare – competition.

So before you or one of your loved ones sign up for a mobile phone plan make sure you understand the following basic terminology:

Contract term
I know its obvious but so many people get stung with early termination fees its worth spelling out. This is the length of time you are agreeing to stay on this plan with this handset for. Most often this is 24 months. If you change your mind, you will be charged an early termination fee (see below). So when you are agreeing to the contract for 24 months you are agreeing to pay at least the minimum cap fee plus handset repayments every month for the next 24 months. Work the actual amount (multiply it by 24) and make sure you are really comfortable with it as once you sign the contract, you can’t change your mind.

Handset payment
If you purchase a handset when you sign up to a plan, your repayments will likely be spread across the duration of your plan. There are couple of problems with this. Firstly, the actual cost of the handset is bundled with the plan (yes, HTC Desire HDs actually cost more than $5 x 24 = $120)  so if you break the contract early, the telco is going to want its money back so your early termination fee will be more than your plan cost – maybe much more. The other problem is if you lose or damage your handset, you are still up for the payments for the remainder of your contract.  For these reasons it is always best to purchase a handset outright. With Android phones going for less than $100 there’s really no need to spread payments over time. If you can afford an expensive handset, just buy one outright. Don’t borrow money from a telco – they are worse than loan sharks.

Early termination fee
This is the amount you will have to pay if you decide to break your contract and go with another provider. It is usually calculated as the remaining months multiplied by the minimum monthly amount but in some cases (especially on a business plan or if you have a bundled handset) can be much more. If you are on contract, make sure you know what your termination fee will be before you signup with a new provider as your new provider will not tell you how much you will have to pay and you will still get a big bill from your old provider.

Cap plan
Cap plans are nothing like cap plans. Forget all the “$700 worth of calls for $29” nonsense in the ads. Its all marketing crap. I would go as far as deliberately deceptive marketing crap but our regulators don’t seem to think so. Cap plans are actually minimum commitments. They define the least you will pay per month. The most you can pay is actually unlimited. How such a thing can be called a “cap” is just beyond me. Worse, there is there is no standard in the way Telcos price calls. So $700 worth of calls on one carrier cannot be easily compared to other carriers. They all charge different flag fall rates and per minute costs. Further, carriers selectively include or exclude services from their “cap”. Some may include voicemail deposits but not retrievals. Some include some data, some don’t.

Call rate
This is the cost of a call per 30 seconds or 1 minute. Even this is not standard. Some carriers charge by the minute some by 30 second increments. Some charge a minimum time per call (say 1 minute). So even if you ring a wrong number and hang up in 5 seconds, you still get charged for a minute and you may as well have continued with the call talking to a complete stranger.

Flag fall or connection fee
This is the amount you will be charged every time a call is connected. This is charged in addition to the minimum call length.

Nearly all mobile phone plans come with voicemail. What many users do not realise that its pretty expensive. On many cap plans, voicemail is not included and some charge a time based fee for deposits and/or retrievals. So you do end up paying if someone calls you – but only if you don’t take the call. Hmmm…

Some plans include a certain number of text messages per month. Some charge on a per text message sent basis.

Beware of using any data on a mobile phone without having a data pack included in your plan. Using data on a casual basis (ie without a plan) can be hugely expensive. This includes web browsing, facebook and emails. If you do have a data pack, know what your limit is and stay under it as excessive usage can easily mount into $1,000s.

Global roaming
The ability to make and receive calls and texts on your existing handset while travelling may sound really convenient but it is never included in cap plans and is stupidly expensive. Calls and texts can easily cost 5 to 10 times the domestic rate (and as they are not part of your plan you will pay for them) and worse, if someone calls or texts you while travelling, you get to pay for their calls too… Data while overseas is even sillier. It is always better to get a local handset or prepaid SIM card when travelling or use VOIP services like Skype.

So how does a mere human work this all out and select the best plan? Well first you need to have a good idea of how often you use your phone – i.e. how many calls you make and how long those calls are. You can easily get this information from your latest bill. Then you need to determine what extra services you want like data plans. If you have a smartphone then a data plan will be essential. When evaluating a plan, ignore the headline numbers and read the fine print of how calls will be charged.

NB I have not discussed coverage or customer service in this article, but to me its simple – Telstra have the best coverage by far and they all have appalling customer service.

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