Vodafone is the only Tier 1 telco not to have already raised their prices. While this is good news for current Vodafone customers, the question that remains is, how long will this last? This article will examine why Vodafone hasn’t raised their prices yet, and whether they will rise in the future.
Why did Vodafone not raise its prices?
At the end of 2022, the two largest Tier 1 Telcos in Australia, Optus, and Telstra, raised the prices of their mobile phone plans. The main reason for this is that the cost of everything is going up. This means the costs of obtaining and maintaining the necessary infrastructure for running a telco are more expensive than they used to be. The cost of this increase is then passed onto the Australian customer.
Since the infrastructure costs have risen, even those who prefer the cheaper option of being with an MVNO saw their phone bills increase. Many companies try to hide this increase in price by offering more data than their customers need. While that has shown to be a successful tactic, many people are still ditching the big two for their cheaper MVNOs.
The only Tier 1 that has not increased prices is Vodafone. Although it’s difficult to say why they made this decision, we have two theories. Firstly, they paused all price changes while waiting for the now-dismissed Telstra-Vodafone deal to go through. It would have been too much of a kerfuffle to deal with a semi-merger and price rises. Our second theory is that they want to keep their reputation. Vodafone, in Australia at least, is known for not being the most reliable but is cheaper than the other two. Even though they might get less profit per customer, their affordability should lead them to earn more customers.
About the failed Vodafone-Telstra Deal.
In the summer of 2022, the ACCC rejected a deal that would have seen Vodafone and Telstra sharing space on the electromagnetic spectrum. In this deal, the two Telcos would arrange how much of their legally owned spectrum the other would be allowed to use. Vodafone would get access to 3700 towers from Telstra as part of the deal. But, in exchange, they would need to decommission 300 towers where currently, the two telcos overlap.
Currently, Vodafone runs just 10% of the market. However, this deal would have made them more competitive, particularly with metropolitan customers. After the ACCC announced its decision, Vodafone shares dropped to $4.50, a reduction of 5.8%. However, they had already recovered to $4.72 by the time the market closed for the day.
Why did the ACCC reject the deal?
The first reason the ACCC rejected the deal is that they were worried about Vodafone raising their prices. If, with the backing of Telstra, they would no longer rely on being ‘the cheap option,’ they would not have the incentive to keep their prices low. This would be bad for low-income Aussies who depend on the cheapest choice. However, Analysts doubt the validity of this argument. One analyst, Eric Choi says that since Vodafone is the only Tier 1 that hasn’t raised its prices, a price rise is inevitable, regardless of whether or not the deal had gone ahead.
Secondly, they were worried about Telstra, which is already the largest Telco in Australia. Since the combined Telstra-Vodafone would be more reliable than Optus, investors would be less likely to put their money into Optus, causing Australians to have fewer choices. The worry is that Telstra would turn into a monopoly, which would not allow Optus a fair chance at competing.
Why Vodafone will likely increase their prices.
Optus and Telstra raised their prices in June and July by 5-10%. And Vodafone stayed put. However, one area that Vodafone did raise their prices for home internet. So far, few people have complained about these price rises. Seeing that they can increase their prices and not lose customers might give Vodafone the confidence to raise the costs of their phone plans. Since Vodafone is the only one of the three who hasn’t raised their prices yet, it seems inevitable that, at some point, they will have little choice but to do so.
Why Vodafone might not increase their prices
As mentioned earlier, Vodafone has a reputation to maintain. They may not be the fastest or most reliable. But, they are affordable for a Tier 1 Telco. This makes them particularly appealing to students who want Tier 1 services but don’t have such high budgets. To maintain its reputation as “the cheap one,” Vodafone might commit to keeping its prices low.
Conclusion
Of course, Vodafone’s guessing pricing strategy will never be an exact science. Behind the scenes, many considerations are not visible outside the company, which could affect the outcome of this sort of possibility. However, the true nature of Australian telecommunications is that it is an Oligopolistic market – prices set by one player are likely to affect others’ pricing – especially in the risky area of raising prices.
Viewed from a distance, the reality of the most likely scenario is more nuanced than this sort of surface-level analysis provides. Vodafone/TPG now manages a massive range of phone companies and plans across multiple brands. (Some would say too many.) Vodafone has Felix, Lebara, TPG, their own Vodafone brand, and others in the market, all offering phone plans at different prices on the same network. A price rise might be applied to some brands, not others. The solution, as always, is to compare on WhatPhone.com.au.