Why That ACCC Ruling Won't Make Mobile Plans Cheaper In Australia

A draft ruling from the Australian Competition and Consumer Commission (ACCC) over the prices mobile networks can charge each other for transmitting calls and texts has been widely reported as meaning those services are going to get cheaper. Guess what? That's not going to happen.

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I've seen headlines such as Cheaper mobile calls and text as ACCC moves to slash wholesale fees (from the SMH), Get Ready For Cheaper Mobile Phones Calls And SMS (from our sibling Gizmodo) and Cheaper calls and text messages forecast after ruling by competition watchdog (from the Guardian). I can see why people have reached that conclusion, but the reality is that nothing that has happened is likely to lead to cheaper mobile plans.

What Has Actually Happened?

The ACCC has issued a draft ruling on proposed changes to the prices which mobile network providers can charge each other for receiving calls and text messages. As consumers, we act like there's just one big phone network, but in fact each network provider (Telstra, Optus and Vodafone) is running an entirely separate network. If I'm on Optus and I make a call to someone with a Telstra number, Telstra will charge Optus a small sum for the privilege. The ACCC regulates those prices to ensure the market remains competitive. (I'm old enough to remember when you actually couldn't send texts to anyone on a different network, so I appreciate that interchange rules matter.)

The ACCC has proposed that the cost of terminating calls on another network should be no more than 1.61 cents a minute, down from the 3.6 cents per minute that is currently regulated. It has also for the first time proposed a regulated charge for receiving SMS (text) messages, which would be no more than 0.03 cents per SMS.

This is only a draft proposal; submissions are being invited until June 5, with a final decision expected in July. If accepted, the proposal wouldn't take effect until the beginning of 2016.

Why Consumers Won't "Benefit"

So what actual difference will this make to consumers? Most of the excitement about potential reductions in cost comes from this single comment in the announcement release from ACCC commissioner Cristina Cifuentes:

We would expect that the savings will be passed onto consumers either in the way of lower charges or through improved call and SMS inclusions in retail plans.

That sounds like we'll end up with lower charges, but there are at least two good reasons to believe that we won't.

The first is this: there is often a profound difference between what regulators expect to happen and what actually happens. The ACCC can regulate what the telcos charge each other, but it can't directly control what they charge consumers. That is left up to the market to decide.

Even when regulations are stringent, they're often not enforced. A pertinent example: midway through 2012, the Reserve Bank introduced regulations which were supposed to restrict surcharges that consumers paid when using credit cards. Some three years later, airlines are still charging the same level of fees they did then.

Margins are tight in the phone business. I can't imagine any of the major telcos passing on a saving if they figure they can pocket it instead.

The other possibility that Cifuentes raises is that plans might have "improved call and SMS inclusions". In other words, we won't pay less, but we'll get more for the same sum.

This does happen, even without regulatory changes. Just this week, ALDI Mobile increased the SMS and call allocations on its plans.

The big problem I have with this concept is that it presumes that we're already paying over the odds for calls and texts. In fact, there are dozens of plans on the market which already included unlimited texting and calling. Just today we rounded up the best of those prepaid deals for under $50 a month. If you've purchased a phone on contract, it's very unlikely you're ever paying for a text.

Yes, there are excessive text rates charged on some entry-level plans, but they're not typical. When unlimited texting is the norm, just what sort of "improved inclusions" would be possible? When even ALDI can sell you 50,000 texts on a $20 a month plan, how much more do we really need?

And here's the biggest problem. The major source of stress for most mobile phone users isn't call charges or text charges: it's data charges. When people ask me which plan they should sign up for, they always want to know about data first. Everything else is secondary.

And this ruling has absolutely nothing to say about those. Who cares if you can send one more text but you can't get any more data without spending $10 or more?


Comments

    There's also the fact that although the cost of inter-carrier calls will come down, so will the revenue from other carriers - so the net result will probably be status quo.

    It's only a matter of time before mobiles stop needing a telco network and be 100% internet based. Every new iPhone seems to make it easy for the user to bypass their telco provider. FaceTime, iMessage, in phone number blocking. Wouldn't be surprised if the smartphones are just modems with a screen soon.

    Last edited 07/05/15 3:01 pm

      Nah, there are too many places where you can't get decent data but can still call people. They won't get rid of the phone part for a looooong time.

      They use their telco provider for the data to use those services

      As @anthonyqld correctly pointed out, all those services rely on 3G/4G (telco) data to operate. It is true that voice and text will have to compete with the more-and-more ubiquitous facebook, apple and skype (microsoft) message/voice apps. In fact, on the 4G network, your voice calls are basically VoIP calls between you and your carrier already (see VoLTE for more details).

      So, rather than be 100% free of the telco network, your "telephone" provider will become your "mobile internet" provider, but you will be just as reliant (if not more reliant) on them in the future as you are now.

    Actually, there is one other reason why we won't see savings, which seems to be totally lost on the commentators.

    That is that call-termination fees are charged by teclos to telcos. So while everybody's reporting that it will be cheaper to make a call, telcos will see a corresponding loss of revenue from receiving a call.

    For example: if you're an Optus customer calling a Telstra customer, the "ACCC has proposed that the cost of terminating calls on another network should be no more than 1.61 cents a minute, down from the 3.6 cents per minute that is currently regulated." which means, yay, Optus saved paying Telstra about 2c per minute for every call you make. However, when your friend calls you back, this ruling means Optus is now 2c per minute worse off for every call you receive.

    So, this is a kick in the teeth for providers who are net-receivers of calls, and a win for providers who are net-generators of calls. But overall, it's pretty-much a zero-sum change.

    So, yes, it's cheaper to make calls. But this just made it more expensive to receive calls (or less profitable to receive calls). Since it's not industry practice to charge customers for receiving calls, you can expect this loss of revenue to be factored into higher call rates.

      Correction - any decrease in retail call costs to reflect the lower intercarrier fees would be offset by higher retail monthly rentals to offset the lower intercarrier termination revenue.

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