According to research from Citizens Advice, around 4 million UK consumers are still being charged for mobile phones that they already own. Consumers that have paid off the cost of their device do not automatically have their monthly service plan cost lowered, which means they’re left paying more than they should.
The onus is currently on the consumer to understand this and take the initiative to contact their provider there’s a real lack of clarity on this issue. Customers are often unaware they need to do anything. This has led to pressure for the bundling of subsidised devices and monthly plans to be more transparent. Mel Prescott, senior consultant at data analytics firm, FICO, explains…
What’s causing the problem?
The ever-increasing price of smartphone devices has seen consumers holding on to their devices for longer than ever. The frequency of operating system updates (iOS/Android), prohibitive price tags, and the fact that even two-year old phones function perfectly well can all be reasons not to upgrade. Having paid the same monthly cost for two years – the most common contract period – many customers become accustomed to the tariff and are simply unaware that the cost is for their device as well as their service.
Sending a single notification to customers before their contract ends doesn’t go far enough.
Ofcom is currently consulting on how to address overpayment for mobile phones, but Citizens Advice says the regulator’s proposal of sending a single notification to customers before their contract ends doesn’t go far enough. It’s easy to ignore or miss one notification. So how can operators take the initiative before the regulator steps in, and make customers aware of what they’re paying for?
Option 1 – Separate device and service plan agreements
Some UK operators, including O2, Sky, Virgin and Tesco, already improve clarity by providing two separate agreements: one for the device as an unsecured loan, and one for the service plan. Customers then know exactly how much they pay per month for the device and for the service.
However, calling for other providers to follow suit isn’t as straightforward as it might seem. Offering an unsecured loan increases the complexity for the operators because of the need to be regulated by the Financial Conduct Authority (FCA) and meet compliance obligations. It would involve changes to credit assessment systems at point of sale and for customer management, regular anti money-laundering (AML) & Know Your Customer (KYC) checks, capital provisions for bad debt, the ability to recognise their total exposure, and re-training sales teams in multiple channels.
These considerations make the problem costly and complex to solve. It is likely, however, that Ofcom will step in and force the issue if consumer group pressure persists. Operators who don’t wish to invest in meeting regulatory and compliance requirements for unsecured loans need a different way of increasing clarity for customers.
Option 2 — Improve transparency in customer communications
At the root of the overpayment issue is a lack of communication. Instead of pursuing double contract agreements, investment might be better placed into developing more transparent billing and communication that enables customers to see how much they pay for service versus their device subsidy every month, and how much subsidy they have left to pay.
Keeping customers informed about what they’re paying means the customer feels in control. Combining this with clear and consistent messages in the months leading up to a renewal, based on metrics such as lifetime value and investment required to retain the customer, can make the decision process smoother for the customer.
Instead of pursuing double contract agreements, investment might be better placed into developing more transparent billing and communication
The benefits of improving communications don’t stop with the overpayment issue, though. By using intelligent analytics that drive decisions about when, how, why and what to communicate to customers, operators can streamline operations, reduce operational cost and reduce churn. Having a deeper relationship with a happier customer can only generate the opportunity to sell more to them and others, and further help recover lost revenue from adjusting the mobile tariff once the device is paid for.
With the amount of coverage the issue of overpayment has received, and the upcoming directive for UK customers to be able to switch provider via SMS to consider, operators should be proactively looking to find solutions for the overpayment problem as soon as possible, or they’ll face losing valuable customers.
Mel Prescott is a senior consultant for telecommunications at global analytics software firm FICO. He blogs at www.fico.com/blog.
Mel Prescott, Senior Consultant for Telecommunications, FICO