Over on our sister site Compare Broadband, we covered the issue of why it’s so difficult to get a decent broadband connection in an article a few months ago. Most issues pertain to how Telstra configures the telephone network, which provides the basis for the vast majority of connections, as all ISPs use the public telephone network (owned by Telstra) to deliver their services. The difficulty in getting a broadband connection is related to how technically difficult it is to actually get a connection.

Too complicated

For the world of mobile phones and plans, the problem most consumers face is the exact opposite – it’s too easy to get a mobile plan. And there’s a growing amount of evidence – at least circumstantial evidence – that telcos use that ease-of-connection to lure in customers with plans that seem too good to be true, but built on a web of complex exclusions designed to extract more money than you expected to pay.

The Age, a Melbourne daily newspaper, recently ran an unscientific forum allowing readers to spout off on their worst customer service experiences of the year. The result, unsurprisingly, was that telcos fared badly. Poor product knowledge, frustrating call centres and surprising bills are the biggest factors. These comments echo the findings garnered by the Telecommunications Industry Ombudsman (TIO) and consumer advocates like the Australians Communications Consumer Action Networks (ACCAN) who regularly run surveys and publish results on the issues driving customer frustration.

Sore spots

From our own analysis, some trends start to become clear. There are SIM-only plans that provide excellent value for money – usually available specifically through mobile companies that don’t actually own infrastructure. These companies are collectively known as Mobile Virtual Network Operators (MVNOs). This includes Amaysim, Dodo, iiNet, Internode, TPG, Woolworths, Virgin, LiveConnected…basically any company that isn’t Telstra, Optus or Vodafone.

The best example of one of these high value plans is from Amaysim (1300 302 942), who charge $40 a month for unlimited calls – and that means just about everything. Landline calls, mobile calls, text messages, picture messages, 13/1300/1800 numbers…it’s all included. And you get 4GB of mobile data. Other companies have caught up, but Amaysim were the first to offer a plan like this that didn’t have some type of common exclusion (usually 13/1300 numbers) that would only be understood by consumers when they get a big bill they weren’t expecting (‘Bill Shock’).

Most of these providers rent a wholesale connection from Optus, with a few connecting to the Vodafone network. Telstra have opened up their 3G (but not 4G) network to wholesale, but the rates must be pretty awful – so far, no large MVNO has jumped from Optus or Vodafone. This may change is Telstra is allowed to acquire the license for Boost Mobile, who have traditionally been with Optus but might become the first big budget provider on the Telstra network.

Meanwhile, any plan that comes with a handset, even through these MVNOs, will be a cap plan with a laundry list of exclusions and complex pricing schemes. This extends to periods when you call at a cheaper rate, or free weekends, or free calls on the same network. These all give the illusion of value, but very few of these plans can deliver on that value if the services are used by humans – after all, how many people store up their communications for use on the weekend? Or know what network everyone they’re calling is on?

Mobile Data

The other issue is data. Vodafone has a particularly bad reputation for this – they have attractive offers available now that will give you 750MB of data with your plan, with a bonus 500MB for the first 12 months of a 24 month contract. Say that sentence out loud and see if it fails to sound ridiculous. In this scenario, it supposes that users will know exactly when their contract is at the half way point, to restrict their data usage, which they somehow magically know in real time.

More likely, users will get a sense for what they can do to avoid getting excess usage bills, and then find after 12 months that they start tipping over. Of course, it’s easy to suggest that a larger number will never use even 750 MB and will never know the difference – but even by that logic, it makes the whole deal kinda useless.

Calls

But call costs are where the real value of a ‘cap’ plan gets undone. Amaysim’s financial chief broke down the science of cap plans in a blog post last year, in which he identified that cap plans are really the opposite of a ‘cap’ – the plan price is really the ‘floor’ price. It’s almost impossible to consistently extract the value of a cap plan consistently every month, and on average, you will blow your cap credit at least once in a 24 month contract. And when you blow it, you blow it big.

For instance – Optus might offer a phone plan for $60 a month, with a free handset, and $500 call credit. What you need to know is that calls are charged at 90 cents a minute with a 40 cent connection fee.

Some people might do some quick math, and conclude that this means you get 500 or so minutes. Of course, this disregards the connection fee. It also disregards the cost of other activities – such as text message, picture messages and different charges for calls to different numbers. In other words, your quick math is useless.

And even if your quick math is in the ballpark, this really means 8 hours of talk time a month. That seems like more than enough, right? But as more people abandon home phones, you have to ask – ever been on a 40 minute customer service call? Ever spoken to a loved one for several hours on the phone? Got teenagers?

Of course, as soon as you exceed those 500 minutes, the math becomes very UNfuzzy. Suddenly you’re paying a real, minted, Australian dollar for each minute of air time. And 25 real cents for each text message.

Free handsets

If you ever wondered how companies can give away phones for free, there’s your answer. These cap plans have an in-built potential to draw the occasional massive bill from each customer.

And even then, most of the time your handset isn’t free. You might be enticed with a $0 offer, but then you find out that’s only for expensive plans. You go one plan lower, and you’re paying $10 a month for the handset. Suddenly your ‘free’ handset is an extra $240 – albeit spread out over time, which is admittedly the point of buying on a contract. We know we’re getting hosed just a little, but few of us can easily spend $800 on the latest and greatest model.

So what’s the solution?

It takes more effort to get a good deal, but the best option is still buy your handset new and then get a high value SIM-only plan. The extra value, peace of mind and flexibility you have will be worth the temporary pain of paying for the handset outright, or finding a second hand model in decent condition.

And if you’re thinking that it’s not worth buying a new handset if you’re not getting it for free, you may be right. But consider too that no mobile phone provider is your mate, trying to get you a deal – they’re a business. It’s not hurting them to provide the phone, they’ve factored those costs into your plan. And they’ve also factored in the likelihood that you’ll eventually pay for it, one way or another.

Recommendations

Amaysim $40 Unlimited – 1300 302 942. They also have an all-Australia based support team, an iPhone and Android app for monitoring usage, and regular special deals on recharges.

Dodo $40 Magic SIM (same as the Amaysim plan, but with 5GB of data instead of 4GB) – 1300 136 793

Outright handsets

iPhone 5 16GB - $799 (ouch). The 4S is $679. Still ouch.

Samsung Galaxy S3 - $549 at Mobicity

HTC One X – From $449 at Mobicity

Nokia Lumia 920 - $799 at Mobicity

Be sure to also check Gumtree, eBay and Cash Converters, popular repositories for unloved smartphones. And remember: digital electronics tend to get ‘old’ more rapidly then they get ‘unusable’. With the two year upgrade cycle, we’re used to thinking these devices will last two years – the simple reality is that they can last twice as long.

For more details, call us on 1300 106 571!