Telstra’s gouge not a patch on our big four banks

The economy is becoming a battleground between oligopolies and households.

Telstra CEO Andrew Penn (AAP Image/David Crosling)

I didn’t have the heart to tell Bong, which appeared to be the name of my Telstra “live chat” assistant, why I was closing my broadband account.

Yes, at $80 a month it was about 30 per cent more expensive than rival offerings. But it was the frustration of being punted to a foreign call centre every time I had a problem that pushed me over the edge.

If Telstra, I thought, can afford to pay its chief executive almost $21m in the past four years, including a 34 per cent pay increase this year, it can afford to have people in Australia answer customers’ calls.

Anyway, I shifted to Aussie Broadband, which apart from being $60 a month, promises “all-Australian” support staff.

The $20 difference is just cream for Telstra, and I was sick of being gouged. Both it and Aussie pay the NBN the same fee, so fluctuations in retail broadband prices are fat squeezed out of consumers.

As wage growth stagnates, people are looking at utilities to save money. The economy is becoming a battleground between oligopolies and households over the juicy billions our highly concentrated economy generates.

These rents are built on incumbency, inertia and obfuscation, not effort or ­innovation.

It’s a zero-sum game: money in your pocket or for Telstra chief executive Andy Penn’s bonus (awarded, by the way, ­despite a fall in profits and market share).

When it comes to gouging, though, Telstra isn’t in the same league as the big four banks. Perhaps no group of big companies in the developed world has managed so consistently to extract so much from its customers.

If the butcher down the road started charging an additional 25 per cent for pork chops, he’d quickly go out of business.

But in banking, even after a royal commission, “our” big four are charging ordinary customers between 1000 to 2000 per cent more than other service providers for foreign exchange services, ­according to analysis by Macquarie that emerged last week.

So enormous are these mark-ups, they contribute about 10 per cent of the big fours’ operating income, or $1bn a year, it found.

And for all the talk of “fintech” there’s little sign of the big four going out of business. With government guarantees, they never will.

Unfortunately, the economy’s most concentrated industries are becoming even more concen­trated according to a study by Sasan Bakhtiari, a senior economist in the Department of Industry.

“There are great concerns that when firms get large beyond certain scales, whether they are productive or otherwise, they will unequivocally use their size advantage to bend the rules and gain advantage through influencing the political process,” Bakhtiari says.

“To stay on top of the ladder, large firms have the option to innovate or lobby. As the cheaper and more effective option with proven outcomes, lobbying is increasingly becoming the preferred strategy.”

For all Telstra and the banks’ gouging, at least they are providing a useful service. The same can’t be said for superannuation asset managers, who enjoy tens of billions a year in fees from their largely clueless account holders.

The typical household, remember, forks out more on super fees each year than electricity and broadband services combined.

Yet evidence and logic shows active asset managers ultimately underperform. A given fund might do well for a few years but ultim­ately, unless it’s run by Warren Buffett, the cost of paying the managers eventually will exceed any “outperformance”. These are just three examples.

Be it broadband, foreign exchange or super, we do have the freedom to shift to cheaper providers. Competition isn’t dead.

Indeed, Telstra’s broadband market share in nine months to June has steadily fallen from 50 per cent to 48.5 per cent. Across the same period, Aussie Broadband’s has increased about 40 per cent to 2.5 per cent, a bigger jump than for any other competitor.

Nevertheless, more transparent, simpler pricing for utilities should be mandatory. Impediments to shifting provider should be removed. We put a man on the moon 50 years ago but portable bank account numbers, which would make it far easier to switch banks, apparently are too hard.

The butcher can’t gouge his customers because his prices are clear and salient; not so for most utilities. Go to the website of your superannuation fund and try to work out its fees. Try deciphering your power bill. Prices are deliberating confusing to make it hard to compare them. Super funds, in business only because of regulation, should be forced to reveal their fees in a consistent fashion, as the Cooper review recommended almost a decade ago.

It’s good to see the competition regulator recommend this month that banks be forced to clarify their foreign exchange fees. Such a concept should be extended to mortgages, where it’s difficult for customers to know the average prevailing rate.

The government’s “big stick” policy to break up energy companies that gouge customers should be applied consistently across all sectors. Oligopoly is a problem in many industries, and such “sticks” are standard in Britain and the US, which have a history of breaking up firms that get too big.

The addition of an “effects test” into competition law in 2017 — which has made it easier to prosecute big firms for acts that hurt smaller competitors — was a help. But without a stick looming as a penalty, big business doesn’t fear the change, says former Australian Competition & Consumer Commission chairman Allan Fels in his new book, Tough Customer. Judges are less likely to be swayed by lobbying outfits than politicians.

“Often the small business that is a victim of abuse of market power has been destroyed or ­severely weakened so it can’t take court action or even give evidence if the ACCC launches litigation,” Fels writes. “A divestiture power would be welcomed by small business and farmers and many citizens who continue to be frustrated by big business’s anti-competitive behaviour.”

The Liberal Party, which says it represents small business, should find it philosophically easy then to embrace a uniform divestiture power.