Times a new, it would seem in the telecoms market, as Optus released its potentially game changing strategy over the weekend. They are hoping to steal customers from their competitors Vodafone and Telstra, by offering to pay up to $450 towards customers terminating their contracts early. The offer is $200 towards exiting your contract early, plus up to $250 credit by trading in your old mobile phone.
This offer of Optus' appears to be well timed as heightened excitement builds within the telecoms market as more and more of us are hearing about the recent leak of the new iPhone 6. Leaks and tips have been pouring in from across the internet, with claims of what the new Apple product may look like. Will it be bigger, will there be more than one size to choose from, will I have to scan me nose to enter it? Unfortunately, not even Bucksoops trained eye can see into the future, so for now, no one will really know until Apple officially confirms our suspicions later today. But how does this all tie into Optus and their seemingly good looking offer of getting your hands on the iPhone 6 sooner?
A Little Bit about The Big Three
Optus is one of the 3 largest telecommunications companies in Australia, along with Vodafone and Telstra. These companies control a market now reported to be worth $25 billion a year, which is supported by News Corps statistical report, showing that to every three people living in Australia, there are 4 mobile phones.
Telstra is the largest player in this market with 13.8 million users, as reported within their full year earnings report. Optus comes in at second with 9.4 million users and Vodafone third place with just over 5 million users.
Cast your minds back to September 2012 when the original iPhone 5 went on sale in Australia, almost two years ago. At this time Apple reportedly sold 1.5 million devices across the country, via direct sales and through contracts within the big three. This is why we believe Optus are now causing a commotion. The rational behind Optus' "early termination" promo is probably to poach customers from Vodafone and Telstra who are on iPhone 5 contracts with their two-pronged attack.
For example, a Vodafone customer who signed up to an iPhone 5 contract in 2012 at roughly $60 per month would be coming close to the end of their contract. Taking these customers into consideration and assuming they have say roughly 3 months left, a contract termination fee would be $60 x 3 = $180 (see details of this calculation further below). So in this instance not only would the cost be covered by Optus, but these customers would also get access to Apple's latest flagship phone 90 days sooner than would have been possible previously.
Foad Fadaghi, Telstra’s senior analyst has argued that Optus have needed to come up with something original to attract customers, after their poor performance figures over the last quarter. Optus, the second largest telecoms player in the industry lost 126,000 customers to Telstra over the last financial year, bringing their total user base down to 9.4 million. In an effort to hit the competition where it hurts, Optus have come up with what I believe is a very strong strategy to give the customers a new handset sooner than they would have to usually wait for their contract to run out, whilst footing the bill at the same time.
I believe Optus have been smart about this offer in some respects, firstly many people want the latest flagship phone as soon as it hits the market thus helping to feed this hunger for retail therapy. Secondly, more than one fifth of complaints to the Telecommunications Industry Ombudsman during 2012-2013 were regarding customers being unhappy with the large costs associated with terminating a contract early. Here’s just an example of why so many people are complaining:
Within Vodafone’s terms and conditions page they state that the early termination fees are calculated as follows, “On most of our plans its calculated by multiplying 100% of your monthly plan fee by the number of full months left on your contract.’
So in the same manner as the example displayed above, if you were paying $60 per month and decided to cancel your contract 5 months early, the fee would be: $60 x 5 = $300.
But Telstra’s exit fees go one step further. Reading through their support pages I saw commentary on their early termination charges, it looks as though these include an unfortunate extra. Termed the Monthly Repayment Option (MRO), you are also going to need to factor in this additional $15 per month cost too. Their justification for this is apparently to do with not being able to "recoup the costs of the device" once a customer breaks out of their contract early.
Teltra's basic early termination fee is the same as Vodafone's where if you were on a $60 per month plan and wanted to terminate your plan 5 months early, you will be liable for $60 x 5 = $300. However, once you've factored in the additional MRO charge, you're looking at an extra cost on top of this of $15 per month for the duration of the contract (i.e. $15 x 5 = $75). So in total to exit this Telstra plan, you would need to fork out a total of $375.
In our opinion, we understand that companies may have to cover certain costs for providing a device, but to charge you a penalty of this magnitude for a service you're no longer going to be using seems a bit harsh. Could Optus’s new approach create an entirely new benchmark I wonder?
But how do you get this money?
This is where it gets interesting, as not everybody can apply for the $200 credit when they sign up to Optus, which isn't necessarily unexpected.
According to what Optus announced over the weekend, consumers who sign up to the 24 month ‘My Plan Plus’ offer, will be eligible to claim the $200 credit to put towards their early exist fees from their previous provider. Read more about their terms and conditions in full here.
These are a few tips from Buckscoop to help you:
- Make sure you get a receipt as early as possible proving how much your cancelation cost. Optus will need this as proof of how much money to give you.
- You can see how much Optus is willing to pay you for your device using this link: www.optus.com.au/tradein
- This price then gives you a reference to make a decision about whether you could get more by selling your existing handset via eBay or Gumtree instead.
- If you have an old phone lying around at home, you should also consider selling it in the same way to give you a bit more towards covering your termination fees.
Once you have figured out how much you can potentially get for your phone, this should give you a more accurate calculation as to how much money you'll actually receive out of the offered $450. But as mentioned within the terms and conditions above, Optus require you to provide proof of cancellation. Once you have done this, then you can apply for a credit up to the value of $200, which could take up to 21 days to process.
Essentially, we believe that this offer from Optus has great potential to help customers get out of contracts which they are not happy with, eradicates some of the associated penalty costs whilst doing so and ultimately allows them to get their hands on the new iPhone 6 sooner than would otherwise have been possible.
For any existing customers loyal to Optus, you might be asking yourselves "well what about us"? Looks like there's good news for you too, as Optus recently announced that they will be upgrading their $80 per month package to having a limit of 5GB of data (a generous increase of 3GB) along with unlimited SMS's and minutes. And for those on the $100 per month package, you will receive a boost to 8GB of data per month. Together, these upgrades appear to represent a healthy effort to ensure both new and existing customers feel valued by Optus. If for any reason you do not receive these package boosts, according to their site you only need to give them a call and they'll increase you plan for no extra fee.
Overall, the team here at Buckscoop really like the direction Optus is going because its not very common for big telcos to behave in such an entrepreneurial way. So depending on the success of this promotion, Optus may just have a revolutionary impact on the sector (or at least that's what we're hoping for). Imagine a telecoms industry where you could terminate your contract early for a better deal and have the expense covered by your new telecoms provider. A ‘win win’ scenario for all customers if it catches on, and of course potential for even more exciting deals in the future.