Canada pulls a Grocery Choice in telco land
A recent article on Slashdot described a situation with an uncanny resemblance to the Grocery Choice debacle in Australia. The Canadian government commissioned and funded a “Cell Phone Cost Calculator” to help consumers wade through the thicket of plans and offers in the market. Pressure is applied by the industry, the project gets scrapped. How unusual.
Scott Adams, who writes nerd-office comic strip Dilbert, coined the term confusopoly to describe a group of companies with similar products who intentionally confuse customers instead of competing on price. Telecommunications often fits squarely in this mould. There is:
- no technical reason for 30-second billing vs per-second billing,
- no technical reason for plans to have “included value” that runs out at the end of a month,
- no way sending an SMS costs anything approaching 25c: in fact, due to the way these messages are prioritised, they should effectively be free as they use unused spectrum
These are all mechanisms to slice and dice the same old offerings and extract maximum value from consumers. The best consumers for telcos are those that sign up to expensive plans and never use them, letting the “value” expire at the end of each month. The plan tricks are all about forcing you to define your expected usage up-front, often for as much as two years into the future. This doesn’t help the telco in any way, just forces the customer to stay with the carrier and, ideally, results in all sorts of large “off-plan” charges
A couple of interesting comments came up in the comments of that Slashdot article.
The Illinois Citizens Utility Board has a “Cellphone Saver” tool where you upload past bills and it analyses it to see whether another plan would be a better deal for you. There are, of course, a heap of caveats and the like on the tool, for plans that can’t fit into their system.
According to one comment, Norway has a similar service, but it is mandated by the government. One source claims it is telepriser.no, but that link doesn’t work for me. All mobile providers in Norway are required to submit details of their plans in a defined format, and the data is loaded into the government’s site so consumers can compare apples with apples.
What I would propose is a hybrid of these two systems. Telcos would be required to provide details of their plans in a standardised format, publicly available to anyone who wants to download it. They would also be required to provide an electronic version of the last 12 months’ worth of bills to any consumer who wants it, in a standardised format. Ideally using a unique customer bill access key printed on the bill, which would be available from a public web service. Then anyone could run a comparison site, including competitors, using the publicly-available plan information and the loadable bill data.
An example: Choice runs a mobile phone comparison site and regularly pulls the latest plan information from a government source, so has details of every plan in the market. Consumers come to the site, enter their unique bill access key and the Choice site pulls their bills from their current provider. Choice then analyses the usage against all the other plans on the market to see if they would have been better off on another plan. Past usage is surely a better guide to future usage than a guess.
Now the telcos would bleat on about the standard format being unable to capture all the permutations they have in plans. But there are no good reasons apart from confusing customers for these wrinkles. There would need to be a mechanism for updating the standardised format if telcos really do want new features, but it shouldn’t be that bloody hard!
Politicians: don’t let telcos bamboozle you with claims it’s all too hard. Their own internal systems handle this stuff, and thousands of old plans doing slightly-different things. It’s actually their core business, so if they’re unwilling to do it it’s only because it increases competition in their cosy little ecosystem.
Real estate: a classic information imbalance
It’s often said you can tell when a real estate agent is lying. His lips are moving.
The property market is a pretty classic place where the information imbalance does the consumer a disservice. Real estate agents have all the information, and most buyers have to make do with their best, uninformed guess. The job of an estate agent is to know how much a house is worth given its features and market conditions. They’re probably even pretty good at it, but they have little incentive to give anyone else an accurate appraisal.
One story about estate agents that crops up all the time is the estate agent inflating the price he says he can achieve before signing the marketing contract. Immediately after the contract is signed, they start lowering the vendor’s expectations to get the sale to happen quickly and bank their commission. As explored in Freakonomics, the agent hasn’t got much incentive to get you an extra $10,000 if it’s going to add a week onto the sale process, when of the agent’s 6% commission, the agent himself might only pocket a couple of hundred dollars.
A simple solution to this would be to give the agent a bigger bonus if he gets over the price he told you he’d get before you signed the contract. And a bigger slice of the portion over that price too. Of course in a world where that happened, the agents would be wary of what they promise, but then you could shop around for the agent promising (and willing to sign for) the best, but based on their expertise achievable, price. I reckon you’d have trouble finding an agent willing to sign such a contract.
Another area where the information asymmetry hurts consumers is agents advertising ridiculously low “guide” prices for auctioned properties. I’ve been to auctions where the “guide” price the agent was publishing was lower than the reserve price of the auction! The problem here is that potential buyers have to expend money, in the form of engineers’ and pest reports, bank cheques for deposits, contract reviews and the like. To then turn up to an auction and find you’re not even in the ballpark is incredibly frustrating and annoying.
There are regular calls to crack down on these kinds of practices, which are illegal in some states but very difficult to enforce.
Another approach would be to require estate agents to publish in some public register their estimate of the property’s value. A public database would enable services to offer historical ratings of how close to their estimate an estate agent has been. It could even be displayed next to the advert in online listings. This would give prospective buyers some idea of how bogus the estate agents’ claims have been in the past, and give some incentive to agents to establish a history of honesty.
Can you see any problems with this approach? What do you think could improve the information available to non-professional property buyers?
Private health insurance: impossible to compare
One of the clearest areas that require some work is private health insurance. There’s basically no way to compare private health funds in any meaningful way. The problem is that for any particular procedure for which you get a doctor’s referral, your doctor needs to contact the service provider and see if it’s covered by your particular cover. And the service provider can change whether or not they charge through the insurer on a case-by-case basis!
The previous government had a crack at this problem with the Standard Information Statements web site. It wasn’t a bad start, given a complete lack of co-operation from insurers, but it’s really more like financial products “Product Disclosure Statements” and doesn’t go into enough detail. The biggest problem is not knowing what medical problems you’re going to have (this is insurance after all) and so any information about what ailments are covered is kind of pointless. Then again it’s not very useful even if you do focus on specific ailments: my father had a heart bypass, his father had a heart bypass, so perhaps I’ll see what they’re like for that. But again there’s no meaningful information available about what they cover for that procedure, or more importantly what they’ll cover in ten years’ time!
At the moment, comparing private health insurance amounts to comparing stock images used in advertising. Do you feel more like the sporty Medibank Private or the no-nonsense HCF? Or more likely, you’re being sold on components that aren’t actually insurance. The insurance add-ons where you give the insurer some money, and they give it back to you for things you really should be able to budget for, like sneakers, glasses and gym memberships. They’re exploiting human nature to sell people something they don’t need.
Solving private health insurance
This brings me to how I think our government should approach these kinds of difficult consumer information problems. The solution is to ask the industry themselves to solve the problem. Put together a committee of experts in the field to sit on the “consumer” side of the equation, tell the industry to come up with a proposed solution to the information deficit, and give them a deadline. If they don’t come up with something satisfactory, the government imposes a solution on them. Simple!
This carrot/stick approach can be applied to a whole range of industries where there’s an informational imbalance between providers and consumers. It means you don’t preclude innovative solutions, but you get a rocket up complacent industries to work out a way for mere mortals to compare their products in a way that highlights meaningful differences.
But of course, you need a government who, when the industry in question comes back with a wishy-washy meaningless approach, gives them a swift kick up the arse and imposes an genuinely meaningful system on the industry.
Fine print of the week: Optus
The large print giveth, the fine print taketh away
Fine print is a company’s way of placing not in front of something. If they didn’t want to hide something from you, they’d just be up front about it. In this weekly segment I’ll highlight a particularly funny, ridiculous or silly piece of fine print. Please send in any you find!
Unlimited˜ phone calls
˜ not unlimited, in fact nothing like unlimited in any sense you’d find in a dictionary, as in lack of limits. No, it’s actually limited in several rather arcane ways.
This first one is an easy target. The “Fusion” plans from Optus combine internet and phone in one package with a reasonable price, like $79. Unfortunately the internet comes with punitive excess charges up to $300 a month, so internally it’s known as the $379 Fusion plan. Anyway, Optus seem so afflicted with the fine print bug that they worked out two different ways of doing it. There’s the traditional fine print at the bottom of the page, as you’ll see in their print and television ads. But no, that wasn’t enough they wanted extra fine print so they’ve got special mouseover areas on the page that show even more fine print. In some cases there’s half a page of fine print hidden in one of these boxes. Insanity!
But wait, there’s more. Hidden underneath “Terms and conditions” is yet more fine print, almost as much content there as the main part of the page.
Fine print on Optus Fusion plan
