I’ve been around the industry a long time now, and seen plenty of times its regulation is unreasonable and illogical. But I side with the consumer on the use of the word ‘cap’ to mean ‘minimum charge’.
Here’s an article I wrote about it recently in my weekly Hands On column in the Australian Financial Review.
“We seldom use this column to advertise legal services, but duty demands that we don’t hide this offer under a bushel. We’ll service any telco’s legal needs for an amazing $100 a month on our amazing Hands On $100 Legal Fees Cap Plan. We’ll do it for Telstra. We’ll do it for Optus. We’ll do it for Vodafone. We’ll do it for anyone. Your monthly $100 spend gets you an amazing $50,000 in included services. Just amazing.”
The secret
The secret behind this miracle offer is that we’ve adopted telco advertising jargon. On any planet we’ve ever visited a ‘cap’ represents an upper limit, the ceiling, the tops. According to Dictionary.com, it’s a maximum limit on prices, wages or spending during a certain period of time, for instance a 9 percent cap on pay increases for this year.
Only in telco land does the word morph to an amazing new meaning: the least you’ll have to pay. On a mobile phone $49 cap plan, $49 is a floor under your monthly bill. Never make a call and you’ll still pay $49. Make too many calls or use the service for something that’s not included in the ‘cap’, and you’ll score a bill way over $49. So we agree with outfits that describe their cap plans as amazing. It’s a truly amazing use of language.
Setting your own exchange rate
The next amazing trick is that many of these companies have devised a way to privately fix the value of the Australian dollar. Check out Optus $19 cap plan with $50 of included value. It’s advertised in the same table as a $79 plan with $550 included value. But a wildly different exchange rate applies in each case. Folks on the lower priced cap plan are charged a national call rate of 47 cents per 30 seconds, while the bigger spenders pay just 35 cents a half minute.
Spend discounts aren’t the problem
We’re not arguing against discounted rates for higher spenders. We’re only pointing out that quoting included value as a dollar amount is meaningless when the service provider can arbitrarily determine how fast that dollar amount will be chewed up. Did we mention that the hourly rate under our $100 Legal Fees Cap Plan is $25,000 ? Yes, your $50,000 included value will get you just a couple of hours of time each month. Amazing.
Neither are we debating that some plans advertised as capped represent good choices for many customers. Our point is that fair advertising is never promoted by confusing language, and calling a floor a cap is about as confusing as it gets.
And ‘cap’ means different things to different telcos
Apart from widely adopting the term, the industry has made little effort to standardise its use. For Optus, caps are a kind of plan they offer; in Optus-land, they are cap plans. To Vodafone, a plan is a different product from a cap, with its web site inviting us to ‘choose one of our plans or caps on contract’.
Telstra thinks caps are kinds of plans, like Optus. But it explains how the charges work by reference to its own unique jargon standard cap start and standard cap end. How a ceiling on charges, or a floor for that matter, has a start and an end isn’t clear to us. No doubt it all makes sense, as long as we let the telcos redefine the english language at will.
Several experienced cap customers we spoke to were clear that the word translates as minimum spend in the telco context. But the same people also understood that you pay for a so-called free handset through the long term payments under a contract. The fact that many consumers are in the know doesn’t help any who are suckered into believing that their spend is capped, sorry, limited.
Regulators don’t seem worried, so far
Regulators like the Australian Competition and Consumer Commission have brooked no nonsense when it comes to claims of free phones or other bonus benefits. Retailer Crazy John has just been disciplined for a free phone campaign that recouped the charges with inflated call costs. But the widespread abuse of the word cap, and the complicated pricing tables and small print conditions that are supposed to justify the practice, seem to escape notice.
Why wouldn’t a company adopt this misleading term, when so many others are getting away with it ?
Footnote
The TIO has a similar view to ours:
Recent years have seen many telecommunications providers market products they describe as capped plans. Such products generally involve an arrangement where a consumer pays a fixed—usually monthly—amount to obtain service value for what is stated to be a higher amount, e.g. a customer agrees to pay $50 per month so they can make calls up to the value of $300.
Contractual terms and conditions for such plans vary considerably, even when they are plans offered by the same company.
Some of the claims made by complainants about capped plans include:
- that they were not aware that they would have to pay more than the fixed monthly payment if their usage exceeded the value associated with the cap, e.g. that they would have to pay more than $50 if they made calls beyond $300
- that they were not aware that the arrangement did not include all types of usage, e.g. that if they made data calls to access the internet they could not count these as part of their $300 in value and instead would have to pay for them separately at the rate of $2.50 per minute, and/or
- that they were not aware that the arrangement set limits on the duration of individual calls, and that they would have to pay separately for any calls that were longer than a defined period.
These and other complaints indicate that consumers may not clearly understand what capping means in the specific context of a plan for telecommunications services. Rather, they appear to understand the term capped in the generally protective sense of the term, i.e. that there is a maximum limit or “ceiling” on the amount of money that they can spend or that they will be charged.
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Love it! Very true indeed.
As a perhaps ‘smarter than average’ consumer, I was always well aware of this issue and constantly had to monitor my usage.
Once you go past your cap, the cost per call is immense at nearly $1 for a 1s phone call. Even pay phones are a bargain in comparison.
I was so irrate about caps that I am just glad at least someone else sees the craziness:
1. The “value” of a cap is actually closely tied to the excess fee. Hence if you have a high value plan (or high ratio if you divide it by your monthly fee) your excess fees will be higher WHEN (not IF) you go over your included call amount.
2. If you try and get a plan that suits your AVERAGE usage you ARE going to be in for billshock. One month can be a higher usage than the rest; if you get a plan that suits your MAXIMUM, then you are going to be ripped off every month with your minimum fees.
In short: caps suck!