Friday, 5 April 2013

Telecoms Contracts - Beware the *FREE* gift!

Telecoms Contracts - Beware the *FREE* gift!

It’s always a sad moment when doing a telecoms audit to discover that the client,  invariably disappointed with the service they are currently receiving, has signed into a 5 year contract for their telecoms, and they have 3 ½ years to go!

Further investigation typically reveals that the incentive for this 5 year tie-in was a free line install! Now this can be a massive carrot and seem like a big money-saver on setting up a business, however, I want to share with you an audit I have just completed which would indicate that this particular carrot is not that easy to swallow!

The offer is a simple one. You get a free line installation and get put on “our best business call plan” with inclusive FREE minutes. That seems like a great deal doesn’t it?

The problem with bundled packages, free installs and massive length contracts is that they are not fair to the customer in so many ways.  The supplier of this offer knows full well what their financial risk and reward is going to be, the end user is oblivious and is making the decision trusting that the information presented to them is providing great value, not knowing what to ask or look out for.  

The Package under Audit:

Free Line Installation, Inclusive Call Bundles and Business Plan for non-bundled calls, all wrapped up in a 5 Year contract.

The Costs:

Description
Qtr Rental
Comments
Analogue Line
£54.15
Q6 of 5 Year contract
ISDN Digital System 2 Ch
£169.61
Q6 of 5 Year contract
ISDN Digital System 2 Ch inc package
£231.36
Q6 of 5 Year contract
ISDN Digital System 2 Ch
£168.36
Q6 of 5 Year contract
ISDN Digital System 2 Ch inc package
£231.36
Q6 of 5 Year contract
Call Charges for Out of bundle calls
£127.38
Q6 of 5 Year contract
Total Quarterly Cost
£982.22


The Perceived “Benefits”:

Analogue Line Installation
£ 112 each x 1
£112
ISDN Digital System 2Ch Installation
£ 320 each x 4
£1,280
Total “FREE” benefits   

   £1,504*
           
* Benefits are based upon the supplier pricing these installations

Is it as good as it looks?

So looking good so far? Let’s look at a competitive non free installation; no free minutes included package 12 month agreements to see where value is being delivered.

Upfront costs

Analogue Line Installation
£   80 each x 1
£80
ISDN Digital System 2Ch Installation
£ 150 each x 4
£600
Total “FREE” benefits   

   £680*

The Costs:

Description
Monthly Charges
Qtr Equivalent
Analogue Line
£      11.50
£         34.50
ISDN digital System 2 Ch
£      23.60
£         70.80
ISDN digital System 2 Ch
£      23.00
£         69.00
ISDN digital System 2 Ch
£      23.00
£         69.00
ISDN digital System 2 Ch
£      23.00
£         69.00
All Call Charges*
£      95.58
£      286.74



Total Costs
£    199.68
£      599.04

*Call charges do not include any free or bundled calls and can be seen to be more expensive than the Free bundle minutes.

What does this mean?
The above costs show that the supplier providing a Free installation is inflating the costs of the installation to encourage the 5 year contract so that the perceived saving is significant to seem worth entering into a 5 year agreement.

What is obvious is that the 5 Year Contract with Free stuff becomes more expensive at month 4 compared to the competitive offer and that by the end of the 5 year contract they will have paid in this instance £ 6,983.60 more than they should, a massive 36% more than a competitive tariff and installation.

Buyer, beware!

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