Are you paying the Telstra tax?

There’s a reason why Telstra charges higher prices. Because it can.

Yesterday, the Centre for International Economics announced Telstra (ASX: TLS) customers were paying a ‘Telstra tax’ simply for using its services. According to the report, customers collectively pay $3.1bn more every year for fixed line and mobile services than if they used Telstra’s competitors.

The report was helpfully commissioned by Vodafone Hutchison Australia. It has paid the piper and, presumably, called the tune.

But the fact a competitor needs to publicise that a larger company is fleecing customers is telling. While most of us know Telstra is the most expensive telecommunications provider, many of us stick with the company anyway.

A quick survey of colleagues showed inertia was a significant reason for remaining with Telstra. This might be perfectly rational. For people with sufficient money and insufficient time, saving $20 a month by switching may not be worth the effort.

There are plenty of other reasons why you might choose Telstra. Another colleague explained a Telstra technician was required for a problematic connection and the potential delays meant it was just easier to use Telstra (surprise, surprise).

Perhaps you live in a region where Telstra is the only feasible choice. Or you might travel to regional areas regularly and require the mobile network with the best coverage.

My own story is that I re-joined Telstra in the mid-2000s as I was tired of junior telecommunications providers going bankrupt. Inertia then kicked in until three motivations to dump it again emerged.

Telstra or TPG?

First, I had the time to compare telecommunications service providers in 2012. I calculated I could keep my landline and internet with Telstra for about $110 a month, or switch to TPG for $50 a month (with a much-improved download limit).

Second, I wanted my email address (then to be independent of my internet provider. Switching to Gmail was a hassle because I had to notify all my contacts, but now my email and documents are stored in the cloud it doesn’t matter who provides my internet service. This makes it easy to switch in future too.

And third, I felt Telstra’s attitude towards certain customers bordered on the unethical. Older customers – such as my parents – were offered poor deals (on download limits, for example) because that’s what the company could get away with. My parents’ dealings with Telstra suggested a company more interested in taking advantage than providing them with the best product.

All this shows it’s important to wear several hats. I might not intend to become a Telstra customer again, but as an investor I can see the business has incumbency advantages over its competitors. These benefits should not be under-estimated, even several decades after the introduction of telecommunications competition.

You’ll probably save money switching from Telstra if you’re able. But price is just one factor in the equation and competitors such as Vodafone Hutchison need to focus on more than that to win market share.

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