Retail prices of telecommunications services

A couple of things provide a reason for a blog post on telco service prices.

The first is a comment by Alan Asher that Australian telco customers are being abused by SMS pricing. He was commenting on a report that;

Australians are paying the highest prices in the world for text messages, which cost the mobile networks practically nothing but earn them millions in profit each year, industry experts say. Australians are expected to send 20 billion texts this year, more than 20 per cent higher than last year. While the cost of mobile phone calls has declined in the past five years, the standard flat rate for a text message at Telstra and Optus has remained unchanged at 25 cents. At Vodafone, a text is 28 cents.

This makes the fundamental error of trying to report on the price of a component that is only ever bought as part of a bundle.

The same error was made by the ACCC. In releasing their discussion paper for a current review of Telstra's retail price controls the ACCC has also referred to (at Pp14-15)a paper they commissioned on the regulation of fixed-to-mobile calls (F2M).

In doing so they repeat the same error as the one above on SMS. They note the failure of F2M prices to decline as fast as mobile termination (MTAS) prices, but don't mention that National Long distance prices over the same time have continued to fall even though the PSTN OTA prices haven't.

Both criticisms need to recognise that operators have one pool of fixed costs and a relatively smaller pool of variable costs to recover in relationships that by necessity involve buying a bundle of accesses. Operators are not required to apply an eqally proportional mark-up of those fixed costs in proportion to the variable costs, and indeed there is a good theory that suggests that would not be welfare maximising.

Meanwhile, however, Alan Asher in Communications Day on Friday has surmised "we’re predicting a highly active year in terms of enforcement, as ACMA and the ACCC battle it out to ensure they don’t end up named and shamed in ACCAN’s ’sleepiest regulator’ contest!"

As a suggestion he might like to urge the ACCC bring action against those telco plans that talk of "$X worth of calls for only $Y". The value of the calls is what I actually pay for them.

Meanwhile, of course, the report we started this with has got confused by the same thing. No one is really charging 25 or 28 cents for SMS, because you get a certain number included in our "cap". They need to keep the headline single SMS price high to inflate the "value" of the cap.

We don't need any retail price controls, we just need clarity in advertising, and perhaps a concept called a RECAP in the book Nudge.