How Contract Phone Plans End Up Costing Way More Than You Expect

We’re not big fans of 24-month phone contracts here at Lifehacker, and the evidence for how they’re bad value keeps piling up. An analysis of phone bills by Macquarie University suggests that people on a monthly plan will typically end up paying $20 or more extra each month.

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The research is part of an ongoing series sponsored by prepaid provider Amaysim, which we’ve reported on a number of times. For this stage of the research, Dr David Gray and his time analysed 201 bills, taken from a demographically representative group of Australians.

“The average bill shock was $28 a month in the sample period,” Gray told Lifehacker. Unexpected data charges were the most common issue, affecting 43 per cent of bills with an average extra total of $22.18. While overspending on calls was less common, affecting just 24 per cent of the group, the average value for excess calls was higher, coming in at $43.12.

Adding insult to injury, many people manage to overspend on data while not using their full paid-for value for calls and texts. “While 40 per cent were subject to bill shock, there was a significant percentage of people underutilising their included value.” The average included value across all the bills analysed was $547, but typically customers only used $262 worth of calling credit. “The average headline cap rate is $53, but you wind up with an average bill of $73. That’s a big jump. Once you’ve used your inclusions, then it skyrockets in terms of the costs.”

Aside from emphasising how most people don’t realise what they’re spending on their phone, Gray said the research emphasised that bills are too confusing for most people to analyse. “We went through 200+ bills and it was a very frustrating process. It was hard enough for us to analyse, let alone the poor consumer. Bills should be simple to read. They should be comparable. You should be able to do it without needing a PhD. All of the potential costs should be identifiable. It’s not rocket science.”

While the gradual introduction of the Telecommunications Consumer Protections Code brings greater transparency to how plans are marketed, it has less impact on how billing information is presented. For now, our advice remains the same: avoid signing up for a contract plan if you can.

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