Telco’s love contracts – Maybe you shouldn’t

Many products provided by your telecommunications provider (telco) – Internet, phone, mobile etc, are delivered under a term contract.

In other words you sign up for a certain period such as 12 or 24 months. A few years ago, it was becoming hard to get anything without a contract. It’s slightly better now, but contracts are still locking most people in.

First of all, what is a contract?

In essence it’s just an agreement: one side (the telco) agrees to provide a particular service, and the other side (the consumer) agrees to that service and pays for it. We spend our lives making these contracts – when you fill your car with petrol, there’s an (unwritten) contract that you’ll pay for it. However the contracts we’re talking about here are “term” contracts, which basically just means they last for a period of time (e.g. 12 or 24 months). If you break the contract, you have to pay an “Early Termination Fee”.

So why do telco’s love term contracts?

The main reason is that it restricts your ability to move to another provider. It should be pointed out that there are also two advantages for the client:

– The telco will often agree to waive any up-front connection or hardware fees, such as providing a mobile handset, providing a modem etc.
– The telco cannot change the pricing on anything agreed to in the contract. In other words they can’t just decide to put prices up.

The problem with second one is that they often change things that are not detailed in your contract. For example, calls to 13/1300 numbers has seen a rise from 25c to as high as 45c over the last few years for no apparent reason. This is because most people don’t know the price anyway and it’s rarely detailed in the contracts.

So why is locking you in with contracts so popular with telcos?

In the early days of telco privatisation, we saw many people chopping and changing around from one provider to another. Many telco’s saw they were spending a fair amount on “customer acquisition” (sales, call centres etc), only to see their new clients walk away when another telco offered them a better deal. Because of this, they wanted to find a way to give some extra discount to clients who were essentially willing to forgo this right. So they started offering these term contracts.

However, these days with the complexity of the network increasing dramatically due to the NBN, there’s a big reason, other than price, why clients would want to leave their current telco: they’re receiving a bad or unreliable service, both in the sense of the telco service (phone calls, internet etc) and customer service (ability to cope with billing issues etc). I often hear of someone suffering from their phones or internet going down repeatedly, only to find they’re locked into a contract meaning they just have to put up with it and hope that their current telco will (eventually) fix it.

The telco also hopes that they’ll eventually fix the problem so that by the time the contract comes up for renewal (i.e. you are free to leave), you’ll have forgotten about all these problems and sign up for a new contract.

So when you’re signing up with a telco under a contract, make sure you know what their like to deal with when they actually have to fix problems. Sometimes I hear of people who say they get a great service from a telco, then I ask them if anything has ever gone wrong and what they were like to deal with. It then becomes clear that nothing has ever gone wrong and so the client has never had to deal with their customer service. This is particularly relevant when changing from a copper service to the NBN. Just because you’ve had no problems with the copper doesn’t mean things will go well when your provider connects you with NBN (not that it’s usually the NBN’s fault).

Don’t get me wrong, having a reliable network is a good thing, however these days, it’s an unobtainable goal to have a 100% reliable network. It’s better to make a network as reliable as possible and then have very swift and accessible customer service and technical faults team that can fix things quickly (in minutes, not hours, days or weeks!).

Probably the best way to find out what a company is like is to ask for a reference client and talk to them.

So, unfortunately telcos are now wanting you to sign a contract so that you can’t leave when things go wrong.

This also creates a dynamic where you have little, or no power. So when your business can’t do sales because the phones aren’t working you can’t call up your account manager and threaten to cancel the account if they don’t move heaven and earth to fix it right away. After all, cancel is what most people would do with any other supplier that’s failed them. For some reason we’re surprised when we talk to the telco’s call centres and feel they don’t care. Because in reality they don’t, you’re in a contract, so you have no choice.

Sure that contract was a good idea?

If you’d like to know more about this topic or simply wish to have a chat with a telco that wants to keep customers through good service rather than contracts, contact Launtel.