Consumers furious over telco price hikes that are set to continue due to inflation and rising operating costs

Vodafone customer Suzie Ray says it’s unfair for the telco to increase prices mid-contract. (ABC News: Peter Garnish)

When Suzie Ray received an email notification from her telecommunication provider about a recent price increase, she was furious.

“I was floored. I couldn’t believe it. I was angry,” the Vodafone customer told The Business.

“You told me the total price right at the beginning and I committed to that total price.

“I’ve kept up my end of the bargain and you need to keep up yours.”

In 2021, Mrs Ray signed up for a device and mobile service plan for 36 months with Vodafone.

She is currently paying $61.47 a month for her phone bills, including a $21.08 monthly fee for the mobile device.

In March last year, she was notified of an increase of $5 a month with additional data allowance which she rejected.

About the same time this year, she was notified of another price increase of $4 a month with additional data allowance. She rejected it again.

“Each time it was about one hour on the phone, and each time it took so much emotional energy just to refuse to be pushed aside, to say ‘no, I do want to speak to a manager’,” Mrs Ray recalled.

“Having to just keep arguing my case, it was really exhausting.

“If I hadn’t protested, if I hadn’t dug my heels in, I’d now be paying $9 a month more than what I agreed to when I signed up.

“It’s too much … people don’t have $4 or $5 a month to spare … if [telecommunication] is an essential service, it needs to be affordable.”

Is it common for a telco to increase prices mid-contract?

Vodafone’s recent price hike means customers could be forced to pay up to $48 more a year for their mobile phone plan.

But questions were raised by Vodafone customers, such as Mrs Ray, about whether a telco can increase phone bills in the middle of a fixed-term contract.

Gareth Downing from the Australian Communications Consumer Action Network (ACCAN) said it comes down to the terms and conditions of that contract.

“What we’ve seen in the past is where there have been price increases that are unilateral, but individuals haven’t had the opportunity to exit that contract that has been found to be an unfair contracting term,” the acting CEO told The Business.

“A lot of the contracts that are in the market are now month-to-month rolling contracts … as a consequence of that, they often do allow for these unilateral price increases, if adequate notice is given.

“While there are certainly cost pressures in industry, any price increase is really unwelcome from a consumer perspective.”

Mr Downing advised that if a consumer has a complaint or dispute with their provider, they should talk to that company directly first.

If not resolved, they should go to the Telecommunications Industry Ombudsman, which is the external dispute resolution body for the telco sector.

Extremely weak retail sales in March indicate households are still under pressure and continue to cut back on spending.

It is not uncommon to have provisions in a rolling contract around price changes, but it’s less common in fixed-term contracts.

Vodafone clarified Mrs Ray’s overall payment plan consists of “two separate charges”.

“One is a fixed-term to cover the mobile handset repayments over a set period, and the other is for their postpaid mobile plan,” a spokesperson told The Business.

“The postpaid mobile plan is month-to-month, which gives customers flexibility to change if they feel it doesn’t fit their needs.

“If a customer cancels their plan or switches to another provider, they are required to pay out the remaining balance of their mobile handset on their next bill.”

Vodafone argued that the recent changes in pricing were made “in response to the continuing high costs of doing business and to support ongoing investments in our networks, technology and security”.

More price hikes on the way

Australia’s biggest telcos, Telstra, Optus and TPG Telecom (Vodafone), have already hiked their prices substantially over the past two years.

In May 2023, Telstra announced an approximate 7 per cent increase in its prices that was to align with inflation during the period, according to an annual communications market report from the consumer watchdog ACCC.

The report said Optus increased its postpaid prices between 5 and 9 per cent in August 2022. It also increased the price of its postpaid mobile plans for existing customers by shifting them off legacy plans in June 2023.

Vodafone increased its postpaid prices by between 6 and 13 per cent in January 2023 for new customers and in April 2023 for existing customers.

Vodafone’s $4 a month price change this year, which analysts said can be translated into about a 9 per cent increase for postpaid customers, is much higher than the Consumer Price Index (3.8 per cent for the year to March).

Telecoms analyst Lucy Huang from UBS said although Vodafone’s price hikes were more aggressive than its peers, it started off at a lower base.

“Vodafone hadn’t raised prices for the last 10 years,” Ms Huang told The Business.

“And a lot of our proprietary surveys have shown that over the last year or two that consumer perceptions of Vodafone network had been improving in terms of network resilience, quality and coverage.

“So, for now, that is helping them justify these higher-than-CPI-linked price increases. But moving forward, our base case is that they also start to move in line with CPI.”

Ms Huang said there are more price hikes on the horizon in the coming year as big telcos try to recoup some of the money invested in 5G infrastructure.

“If you look at the amount of investment that the telcos — particularly Telstra, Optus and Vodafone — have invested in 5G networks over the last few years, they haven’t been able to raise prices for quite some time and industry returns have really halved over the last 10 years,” she said.

“At this point in time, we do think that a few more price increases over the next couple of years will be sustainable.

“But the telco industry needs to go through this period because, if you look globally, Australian mobile pricing is actually pretty low from a gigabyte perspective.”

UBS expects Telstra to announce a price increase of around 3 per cent in postpaid plans over the coming weeks, which is likely to impact 65 per cent of its customers.

Telstra told The Business that “no final decisions on future price changes have been made at this stage”.

Optus said it is moving prepaid customers on Optus Flex and Optus Flex 5G plans to its latest Flex Plus plans, meaning some customers may see a price increase.

A shift to cheaper mobile resellers

Major telcos say they offer a range of payment assistance options to support customers who struggle to pay their phone bills.

And additional data allowances are usually offered along with price increases.

But Mr Downing said that extra data is often not used by consumers.

“Consumers are not necessarily matching the product in the plan neatly to what they actually need. And so often, they’re paying more for data that they’re not actually using,” he said.

“They can make considerable savings by moving to other plans.”

Both Mr Downing and Ms Huang have observed an emerging trend that some consumers are shifting away from big telcos to cheaper small resellers, or mobile virtual network operators (MNVOs), which don’t own network infrastructure but resell access to major telcos networks.

According to UBS, small resellers, such as Amaysim and Boost, currently account for around 13 per cent market share, gaining 2 per cent from two years ago.

“This is something that we are watching quite carefully, particularly through this cost of living crisis,” Ms Huang said.

“So far [major] telcos are managing that risk and balance quite well.

“We remain fairly comfortable that this isn’t going to be too disruptive in the medium to longer term.”

Mrs Ray said once her contract ended, she would switch to one of the small resellers to save money.

Watch the story on The Business tonight at 8:45pm AEST on ABC News Channel, or stream on ABC iview.