Thursday, September 12, 2013

How to evolve from being a business into being a scam: Part 2. Mobile phone companies.

I complained the other day about the charges that both my British and Australian banks hit me with when I want to move and convert money to and from Australia, and the need to engage the services of an intermediary - in this instance an FX broker - in order, essentially, for the cost of getting my two banks to interact with one another to be more reasonable. At the end, I made a comparison with mobile phone companies, in that both sets of companies screw their customers without mercy for relatively infrequent services that the customers may not understand well, regardless of how trivial are the costs to them.

The analogy holds even more closely, though. The bank is essentially using the excuse of an international service to charge through the roof. How I resolve this is to make a local transfer (no charge) to the Australian bank account of the FX broker through the Australian payments system, the FX broker changes the money for me in the FX markets (modest charge), and the FX broker then makes a local payment to my British account (no charge).

As it happens, in recent days I have had the need to make quite a few mobile to mobile telephone calls to Australia. I have a contract with one of the four big network owning mobile phone companies in the UK. (I won't single the company out - they are all much the same). I could simply dial the Australian number on my phone, but once again the charges would be absolutely outrageous. It doesn't cost the mobile company dramatically more to terminate a call abroad than it does to terminate a call in the UK, but the charge to me is vastly more.

So, what do I do? Once again, I engage the services of an intermediary. I use a call forwarding service. I dial a British number from my mobile, which then asks me to dial the Australian number. I dial the Australian number, and then the call is connected. The call forwarding service then charges me a much smaller amount than the mobile company would directly.

The same thing has happened here, pretty much exactly, as with the bank. The amount of money the mobile phone company is making from customers who do not understand how the system works, and/or do not understand to what extent they are being overcharged, and/or lack the ability or desire to cope with the hassle of using an intermediary is such that they are willing to forgo the business of the customers who do understand this.

At the moment, though, they are only forgoing some of the business. I still have an account with a major high street bank, and I still have my main mobile contract with one of the four big operators. The reason is that for the regular, mainstream, local services that I need, it's very difficult to function without them. In a world with fewer barriers to entry, the intermediaries that I engage for my international transactions would start to compete with the larger operators on their other services as well, and competition would then force everyone's prices down. That isn't really happening, though. The mainstream players face too little competition on their mainstream services, and the niche players remain niche players.

(Two further observations on this. Firstly, yes, I could use an MVNO like Lebara who specialise in international calls. This would give me cheaper calls without having to go through the business of dialling a call forwarding service. Yes, indeed, but these companies only really work for people who want a phone for which all their calls are international. For those of us who are mostly domestic customers, who make some international calls (especially to mobiles) and who want the convenience, monthly billing, customers service etc of the big operators, they fall short. Anyway, they use the big operators' networks (and are so at their mercy, ultimately), so they are just a slightly different kind of intermediary to the call forwarding services. Secondly, it is undoubtedly true that large corporate customers of both banks and mobile phone companies are able to negotiate better deals than individuals, and not get screwed in quite the same way. This doesn't help me, though).

Wednesday, September 11, 2013

How to evolve from being a business into being a scam: Part 1. Banks.

Both my British and Australian banks charge me utterly outrageous exchange rates when I want to convert money between AUD and GBP. (We are talking something like 5% in spread and commission). As it happens, I am not going to pay $100 to you to change $200 - $20 is more reasonable - so I have to go off and use an independent FX broker. (Mine is based in New Zealand, BTW. I had to go through all the standard anti-money laundering crap of sending copies of my passport and utility bills before they would accept me as a customer, but they have themselves been excellent).

The fact that large banks have become organisations that will screw their customers outrageously at any tiny opportunity that they can find - often because they know that the customer is doing something complex that he does not really understand and does not know how to shop around for (or - better - which regulations make it difficult to shop around for) is a big part of why people hate them so much. You sort of know that you are being screwed, but don't know quite how.

Mobile phone companies (also much too close to the state, and also much too heavily regulated by regulators who have been captured by the phone companies) are very similar in terms of how they will screw you. In some ways they are practically banks themselves, too.

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