What to do with a down, down campaign when prices have to go up, up?

Facing what Spark says will cost it $60 million per year more than anticipated, the company is, in the public eye, in a state of shock and turmoil. But some are saying the shock should have, and possibly would have, been anticipated.

A Commerce Commission draft report released this week indicated the wholesale rental of Chorus copper lines could increase by $4.70 per month for each of its 1.7 million phone lines. 

Reeling, Spark released a statement on Tuesday saying it would be forced to consider an increase in its prices.

“Given today’s decision, we feel we have no choice but to undertake an urgent review of our current pricing across both voice and broadband plans,” Spark managing director Simon Moutter says.

This is a little awkward considering current Spark marketing campaigns are centered on great prices for consumers, and how Internet has been one of the only products in New Zealand that has consistently dropped in price, rather than risen.

On its website there is an interactive page about The World is Changing, showing while the price of everything else is increasing, broadband and phone lines continue to get cheaper (it was created by Touchcast). 

“This is the most awesome it’s ever been and it will only get even awesomer,” the page proclaims.

Above: a graphic from Spark’s recent online communications

Does this read as an implicit promise to consumers that prices will not go up? Or does it warm them up for accepting price rises?

Spark head of corporate communications Richard Llewellyn says the current campaign is aimed at raising awareness of the fact that prices for broadband and mobile services have been coming down significantly in recent years, while the value that consumers are getting has been going up.

He contrasts Spark’s announcement of an urgent review of customer pricing as relating to “effectively an increase in wholesale Chorus charges for Internet service providers”.

He says for the past two years Spark has been anticipating a $10 reduction in broadband costs, which in a very competitive retail market has already flowed through into their retail broadband prices.

“But what we didn’t expect was a $5 increase in the cost for a residential or business line – for both broadband and standalone voice services. Hence the review. While we haven’t completed that review yet, decisions around changes to customer pricing are never made lightly,” Llewellyn says.

In the wake of the Commerce Commission’s draft report, Spark has been very vocal in saying the proposed pricing is entirely unexpected, a surprise, unanticipated. 

A manager at a leading New Zealand communications agency who did not want to be named says he takes Tuesday’s strongly worded press release at face value.

The press release is tasked with addressing a number of people at once: the market, investors, analysts, media, the Commerce Commission and of course customers too, he says.

 What he finds most interesting is it is “a bit of a loud shout”.

“If you look at the tone of the release I think with that [Moutter’s] trying to make a very strong statement to the regulator.

“I guess he’s saying that we’re not going to take this without a fight, and of course to customers he’s signaling that if things proceed as it looks they are are going to, then they will have to put prices up.”

Moutter also says that due to intense competition prices have been pushed lower and lower in anticipation of the average copper line being priced at $34.44. Instead it’s now been tentatively priced at $38.39 per month.

“For instance, what you get in our basic $75 broadband plus home phone plan today would have cost you $105 three years ago.

“In that time, our wholesale costs have barely moved until the new charges came into effect yesterday, “Moutter says.

Whether this will in turn mean higher prices for customers, we don’t yet know, but Spark is certainly warming the bed for customers to either have a price increase, or perhaps just not to have a decrease.

The Dominion Post writer Tom Pullar-Strecker is a believer in the latter. In an opinion piece he says Spark’s suggestion that it faces $60m in unbudgeted costs and is needing to urgently review pricing “rings hollow”.

“If Spark didn’t anticipate the larger $10.54 cut previously flagged by the commission being pared back and if it really did price-in that bigger drop ahead of it taking effect yesterday, then it needs to recruit some better analysts and economists,” he says.

“But Spark is cleverer than that and I’d say it is instead preparing consumers for the fact there may be no discernable price reductions as a result of today’s draft decision.”

However our communications commentator thinks the surprise, and the preparation for a potential (if limited) price rise is genuine.

“It doesn’t feel to me from the release that they had prepared for that scenario – they obviously took the Commission at its word and it’s a pretty strong statement – but it needed to be probably given the shock they got,” he says.

Reports today have Spark spokeseman Andrew Pirie stating that Spark has some room for price rises, which are limited by the Telecommunications Service Obligation, because it hadn’t taken the option of raising its retail prices in recent years.

With plenty of uncertainty facing the pricing of Chorus copper lines, the Commerce Commission’s final decision, and how this will affect telco retailers, only time will tell what communications customers should be relying on.

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