Kogan's telco growing pains

Retail enfant terrible Ruslan Kogan has gone from strength to strength over the past couple of years, and until this week it seemed as if he couldn’t put a foot wrong. However, it looks like his ambitious foray into the telco market has given him a headache.

The fanfare around the December launch of Kogan Mobile has given way to some harsh realities, with one poor decision now threatening to damage his reputation as an advocate for consumers and the persona that’s seen him charm both customers and the media.

So what was Kogan’s mistake?

Well, for once it looks like Kogan’s showmanship has led him to over promise and under deliver. After deciding to become a telco reseller in December, it looks like he’s had to back flip on the usual grand promises that accompany every Kogan product launch.

The move to become a reseller makes some sense. Kogan’s online store has long stocked mobile phones, and selling a Kogan-branded telco plan seems like a logical add-on sale. As far as Kogan.com is concerned the industry is also ripe for the picking, as Kogan.com’s executive director David Schafer explained in a statement spruiking the launch of the product:

“Australian mobile phone plans have been among the most confusing in the world,” Schafer said.  

“In the rest of the world, customers pay for minutes used or days of service. In Australia, we’re given slogans like, $49 for $500 worth of calls. These are empty slogans that don’t mean anything and are specifically designed to baffle and bewilder the Australian public. At Kogan, we like to make things simple - unlimited plans, no lock-in contracts, using part of Telstra’s Mobile Network.”

There’s a sense of irony in Schafer’s words, as this idea of “empty slogans” now seems to be what a swarm of angry customers are using to define Kogan’s telco operations.

Earlier this week stories emerged that Kogan Mobile is dumping high-use customers; people who had signed up for his “unlimited” plans but were now being chucked off his service for making too many calls or who were drastically exceeding their 6GB per month data cap.

Kogan.com defended the move in a statement by saying that some of his excommunicated customers simply breached its service’s Acceptable Use Policy - a policy that’s enforced by the Kogan’s nameless Telstra wholesale partner. Here’s what it has to say:

Kogan Mobile procures and onsells an Unlimited Plan with 6GB/month data from Telstra's Partner. Telstra's Partner is under significant pressure to restrict excess usage on the Telstra Network. This pressure is not being applied by Kogan Mobile. 

It is not Kogan Mobile, but Telstra's Partner, that administers the Acceptable Use Policy. While it is clear that certain users of Kogan Mobile have exceeded the normal usage of an ordinary person -- some average over 14 hours of continuous calls per day and some have used over 40Gb data per month -- it is also true that Telstra's partner has acted without Kogan Mobile's authority in preventing certain users from extending their access after their initial access period had expired.

Although Telstra's Partner acted without authority from Kogan Mobile, any affected users still received all of the services they had paid for.

There are a very small number of users that attempt to use the network in a way that breaches the Acceptable Use Policy. As with any other telco, we need to ensure the network is only used for personal use, to ensure the 99 per cent, plus, of people can continue to get a fantastic network at a great price.

Telecommunications consultant and analyst, Tony Simmons says the company is well within its rights to cut off any consumers that breach its Acceptable Use Policy, particularly if that document says that a product can’t be used for commercial purposes. He adds that by using tracking technology, a telco can tell whether or not a phone is being used for business purposes.

“Technically, they can triangulate the position of a SIM card… if they have a plan that’s all-you-can-eat, and they say that every single call or text is being sent from one position, a stationary position like an office, then they can make an assumption that the service is being used for business,”

However, in saying this, Simmons adds that these documents are laden with legal jargon and vague terms that offer telcos a lot of wriggle room to move in using these polices to justify a decision. 

To Simmons’ the whole situation shows that Kogan really only understands the telco industry from a financial point of view.  By cutting off high-use customers Kogan looks to be mitigating costs and maximising profit.

“If you burn a couple of customers and you still have 100,000 left, as the press reports are saying, then you’re still probably making some excellent numbers off it,” he says.

But Simmons adds that the telco industry is more than just a numbers game. Telcos need to maintain a balance and there can be consequences if vendor are caught burning customers for profit.

While it’s too soon to say whether this incident will damage Kogan’s brand, Simmons did point to Vodafone, who a couple of years ago made similar sweeping statements about their network.

“The question is, do they [Kogan] understand the implications of getting it wrong… and you look at Vodafone, what were the implications for them getting it wrong. They were huge,” Simmons says.

“[Vodafone’s] touting coverage, [it’s] touting throughput, it doesn’t materialise, and next thing you know you’re losing customers and you’re involved in a class action.

It will be interesting to see how Kogan rebounds from this whole situation. He’s launched a statement, but don’t expect that to be the end of the issue. Given how much media traction this is getting, it’s almost certain now that he’ll make some grand offer in a bid to seek redemption from the public.

Meanwhile, the whole debacle serves as an excellent lesson for other companies looking to muscle into Australia’s virtual telco scene. While there’s money to be made, the consequences can be dire if you overpromise and then appear as if you’re under-delivering.