Optus loses revenue trying to drive customer loyalty

Optus is giving up revenue from bill shock in an effort to better hold onto customers, according to the number-two telco’s chief executive in Australia.

In a speech this week to the Australia Israel Chamber of Commerce, Optus chief country officer, Kevin Russell called on the mobile industry to lose its addiction to revenue from customers who exceed their contract limits. He announced that Optus will release new plans in the next few months with an aim to “eliminate” bill shock.

“As an industry we're becoming increasingly reliant on not non-core revenues but revenues that have come more from breakage or fees,” Russell said.

“We've got some tough decisions to make, decisions to change practices that give away revenue, or stop revenue that was a drug that you could have relied on.”

In Q4 results reported last week, Optus blamed a 5.4 per cent year-on-year revenue decline in part on lower roaming and contract breakage revenue.

“The acceleration of lower roaming and breakage revenue was, in part due to Optus providing customers with usage alerts and caps on excess usage beyond plan allowances,” it said.

In a media call announcing the results, Russell noted that "more explicit usage alerts and roaming caps does have a direct impact on short term revenue but these changes are crucial to a sustainable business longer term.”

“Customer experience is significantly improved and we are confident that churn rates will accordingly be lower in the future, establishing more sustainable behaviour to generate sustainable revenue growth in the future.”

The usage alerts and other changes were required by the Telecommunications Consumer Protection (TCP) code, which was recently updated by industry with the aim of reducing bill shock.

Consumer advocates have heralded Optus’s lower revenue as a success for the TCP code.

"These numbers show that spending alerts are reducing bill shock for Optus customers when they travel overseas, and this is really encouraging," said Teresa Corbin, CEO of the Australian Communications Consumer Action Network.

"We think pro-consumer measures are beneficial for both telcos and consumers, as consumers should be receiving fairer and more transparent services, and this in turn may lead to greater loyalty to their telco."

Confusion pays

Customer confusion has paid off for the Australian mobile industry, according to telecom analyst Paul Budde. “We estimate that we pay 10 to 15 per cent too much for (non used/overcharged) telecoms services.”

However, “it is a very bad practice if you need to make your money from consumer confusion or consumer rip offs,” Budde said. “In the eyes of the consumers they are not operating in good faith.”

“It’s bad business if you get bill shock,” said IDC analysts Dustin Kehoe. “No one likes to be shocked for a bill and the amount of money they pay is extortion.”

Optus’s Russell said declining revenue in the mobile industry has perpetuated the practice of relying on breakage revenues.

“As an industry, our revenues are now declining slightly, quite steadily,” he said. “And I know that the market certainly is maturing. I also know that we have big investments, whether it's spectrum or 4G infrastructure. And I know to get a return on those investments that we will have to get more money from existing customers.”

“What I think's happened is we've been chasing customers, we've been driving down headline pricing, we've seen our revenues come off and we've gone, ‘What do we do?’ Well, we're going to have to have higher rates for breakage, and we're going to have more fees to prop it up.”

However, that practice is not “sustainable” because it makes customers unhappy, Russell said. “The revenues that come through from that type of activity doesn't make sense. I estimate that in any year, about half of all customers at Optus will go through their caps and will break.”

“If you've got unsustainable revenues that are upsetting your customers and their loyalty, I think you have to address them head on.”

Follow Adam Bender on Twitter: @WatchAdam

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Copyright © 2013 IDG Communications, Inc.

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