Why are phone plans so expensive in Australia?

Expensive phone plan

First, Australia is huge. Compared to say the UK, it is 31 times larger in area. Fortunately most Australians live in the cities; so the Telstra network can cover 98.5% of the Australian population with a spread that is ‘only’ 8 times the size of a national network in the UK.

On the other side of this coin is our small population. 23 million people need to foot the cost of this massive network as against 63 million in the UK. A bit of maths suggests that carriers are not left with much room to move if they have to turn a profit.

The other reason for high rates across all major carriers is the lack of competition.

There are 3 networks in Australia – Telstra, Optus and Vodafone. All other providers are just resellers that buy network capacity from one of these three and repackage it into their own branded plans. These resellers can sometimes offer more competitive rates than the big 3. In fact Optus reseller Amaysim offers one of the best no-contract deals around.

But by and large Australian carriers have no real incentive to drive down prices. The only time we saw a good old-fashioned price war was three years ago in 2010. Vodafone users were leaving in droves due to network issues, and Telstra crashed their prices to draw in some of these price sensitive users. Optus followed suit and consumers had a field day with phone subsidies and low-cost plans. But all that stopped last year. Now prices are again back to 2010 levels.

But it is not all gloom and doom. A recent OECD report suggests that of 12 countries surveyed, Australia may actually be the cheapest country to own a phone on contract.

For once Australians pay less than Americans for similar service. The same challenge of providing network coverage over a vast geographical area plagues US carriers as well, though they do have a bigger population to cover costs. But US mobile operators form a close-knit oligopoly and on average users pay as much as $100/month for a 2 year smartphone contract. Curiously American plans charge the user for outgoing and incoming calls.

The OECD report does not include high density nations like India, Seoul and Japan where prices are less than a tenth of what we pay here. Still we can feel better about getting a better deal than least the Americans.


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