Why the Large Telecom Operators Want you to Sign Up to a Contract. What you Should Know.
Foreword - A Simple Guide to the Telecoms Business
In the old days – 30 years ago plus – there were no Mobile Phone Networks, and for most people, to make a telephone call anywhere, a “fixed” line was needed. This would be provided by a simple cable which was in most cases connected by engineers to the building concerned or PayPhone installation from the nearest telephone pole or Exchange.
Satellite phones were available but the cost was beyond the pockets of most consumers.
Monopoly.
As a result, the owners of the “cable” were in a very strong bargaining position and could basically charge whatever they wanted to charge for (1) connecting the cable (2) providing a maintenance service and (3) for deciding what the call costs should be for national and international calls. The main Cable Network was known as the PSTN (Public Service Telephone Network) and each country had it’s own PSTN which enjoyed a Monopoly on telephone traffic. Two well known examples of these national monopolies at the time are AT&T (American Telephone and Telegraph – formerly BELL) in the USA and British Telecom (BT) in the UK. Both these companies used a Contract to provide services to the customer, and it was a “dream business” – rather like printing their own money. Armed with millions of contracts, PSTNs could leverage massive sums of money to develop their businesses further.
Fast Forward to Today
The main changes in the last 30-40 years have come about for three main reasons:
Removal of Fixed Line Monopolies. First, for the fixed line or cable services, the Governments of most countries woke up to the fact that a national Telecoms Monopoly was not a good idea, and introduced competition, by forcing the PSTNs to share their cable networks. This was not entirely successful in that the PSTN and the new competition had different ideas about the value of the existing cable networks, but it did result in a gradual and nominal lowering of prices for the consumer.
And most of the old fixed line call and data traffic is now carried over fibre optic cable.
The Advance of Mobile. Secondly, the new Mobile Networks – which of course do not rely on cable to transmit traffic, but use VHF Radio waves on special frequencies under licence – have now established their own extensive arrays of Transmitters/Receivers, so their coverage (ability to connect any call to any number) is pretty much on a par with the PSTNs. Whereas a cable customer could be identified by the number allocated to them, Mobile Networks relied on a new technical invention called the SIM card (Subscriber Identification Module)
The Internet of Things The huge advances in internet technology has had a dramatic effect on the Telecoms business, because there is a third network now available for telephone call traffic using SIP and VOIP technology. Not only that, but the Internet provides Video Communication and Messaging which is to all intents and purposes free (always remembering that Internet Bandwidth does have to be paid for by somebody!)
Who Supplies and Controls Internet Access?
Access to the Internet is of course controlled by the Telecoms Operators – both Cable and Mobile. This is why so much money has been spent by PSTNs and other fixed line Operator companies and Mobile Operators – the goal is to have faster and faster internet connection (broadband) using fibre optics – fixed line or cable – and 5G from Mobile networks.
So How Do We Normally Pay for our Internet and Telecoms Services?
Telecom companies – and by this we mean both Landline (cable or fixed line) and Mobile Operators – want you to sign up to a Contract.
WHY?
Because this business model makes the most profit for them and – more importantly – gives them the ability to raise finance to pay for their future expenditure, be it taking over another company or upgrading their networks. It is important to realise that the cost of any one telephone call over an existing network is in reality as near zero as makes no difference – even for most international calls. The percentage profit on any telephone call is colossal, which is why the Contracts can seem to be so attractive, with “unlimited call minutes” etc. etc.
The same applies to Internet Access – which is now part of most Contracts. Most consumers will never approach the maximum bandwidth or maximum call minutes or maximum SMS messages available on any contract: even if they do, the profit margins are so high that it is immaterial.
Better still for the Mobile networks are contracts which include the purchase of a new mobile phone (more profit) and which tie consumers in for two years + (with penalties for early termination).
And they have your Bank Account details.
Consumer Inertia
And once a consumer has committed to a Contract, the Networks rely on the inertia of most consumers to prevent them making changes. If you want to experience the best sales pitches from these Networks, and assuming you are able to connect with their “customer service” without waiting for hours on the phone, try to cancel your contract and see the immediate response from their Sales Retention Team. You will be surprised at the improvements that can be made to any Contract you may have, because their absolute priority is to retain their Contracted customers.
So What Prepaid Options are Available?
Pre-Paid Mobile
Most Mobile Networks will offer prepaid call time and SMS messaging, but the packages are not always generous and the call charges normally expensive. There is also an expiry date – which means that the prepaid package you have will terminate after a fixed period whether or not you have used your allocated call minutes or SMS quota.
Pre-Paid Calling Accounts – Local Access Numbers
The Calling Account is the successor to the old phonecard – more information on Calling Accounts can be found at https://callingaccounts.com
Calling Accounts are worth checking out if you need to make international calls, which are often a good deal cheaper. However, to use a Calling Account, you will need first to call the allocated local or Freephone access number, which will require a conventional landline or mobile phone, and for this reason they will not be as convenient. On the plus side, many Calling Accounts offer international access for a number of different countries which can be very useful and when used in Internet Mode, offer many different services including VoiceMail and Personal Numbers.
Pre-Paid Data SIM Card
The Prepaid data SIM card is available from most Mobile Networks and is in our opinion the best way to make economies and avoid a Contract. With Internet access, all the normal messaging and chat options are there and voice calls can be made using FREE browser, mobile or desktop applications from one of the many companies specialising in VOIP and SIP calls – including Calling Accounts. The only downside is that most of these Pay as You Go or Pre-Paid Data SIMs have an expiry date.
So What Do You Recommend?
Obviously, there are many different options and everybody has different priorities. Luckily there are a large number of different Contracts available, and you need to make sure you are not paying more than you need to.
Without careful management, prepaid options for voice SMS and internet could actually end up being more expensive than contracts – which is good news for the Telecoms Operators and not entirely accidental.
Our recommendation is to regularly review any contract you may have and make sure that you are on the best contract which is suited to your particular requirements: if you are nowhere near your allowed quota (Internet Bandwidth, Call Minutes, SMS), ask for a cheaper package. Conversely, make sure you are not being penalised for exceeding your quota.
If they want to keep you as a customer, make them work for it – and don’t be afraid to ask advice, as the salesman will know far better than you do which Contracts may be more suitable.
Our own solution as a small business is to use a combination of contract and prepaid: we have a Data SIM on contract for our internet access, which provides sufficient bandwidth and a fixed number for Caller ID purposes, and we use the free browser mobile and desktop applications for Voice Calls from a prepaid Calling Account service. This combination means that we can operate economically from just about anywhere with any device.