Vodafone was recently caught out adding a £1 per month charge to 1 million UK customers’ accounts. This could generate hundreds of millions for the UK giant. But at what cost to its business? And what are the lessons for MVNOs?

There’s a certain wisdom circulating in our industry – originating from the thinking of management consultants – that is if you can just raise ARPU a little then you can transform the profitability of your company. There are a number of sneaky ways MNOs have tried to achieve this. The first was raising prices mid contract. This has been confirmed as legal but is hugely disliked by customers who quite rightly believe a deal is a deal. Another method is one Vodafone UK has recently been caught out doing. Providing a free trial, then hoping customers won’t notice sneaky charges when it ceases to be free. This method relies on either the fact that the service is actually pretty useful, but equally on the fact that customers are too busy to notice small extras on their bill.

In Vodafone’s case the charge was for a security service branded Secure Net. Rather than trying to market the benefits to customers – hard to do – Vodafone has taken the easy way out and bundled in a free trial when customers renew their contract. The three month free trial is impossible to remove at the time of renewal and can’t be cancelled until at least 24 hours later. After the free trial the service costs £1 per month. However, the cost is hidden or at best glossed over.

The accusation is that if you take out the contract online it’s not mentioned. And staff in-store de-emphasise it and the charge is hidden in a small line item amongst others that are zero rated, and thus is easily overlooked. Instead, the company sends a text to notify the customer after they sign – putting the onus on the customer to remember to cancel a service they never asked for.

At best this is sharp practice. At worst it’s unethical. And you’d think Vodafone would know better given that companies from a wide variety of verticals have had their knuckles rapped for similar practices. And what’s worse is that more Vodafone customers complain to Ofcom than from any other provider (see Tesco Mobile beats all UK MNOs when it comes to complaints).

The UK regulator, Ofcom, is said to be investigating whether Vodafone is making the charges clear enough. But quite apart from anything else companies need to get the message that they cannot hide sneaky charges for long in this social age. You can ruin your brand name and trust very quickly.

You may be able to fool some of the people for some of the time, but not all of them for all of the time. Some customers are cancelling the charge. Others are complaining: either directly to Vodafone, on social media or to the ombudsman or regulator. And some will ultimately churn.

Cynically, we could argue that Vodafone has figured out that since it has captured the customer for another two years on contract it can afford to alienate and irritate them early on.

How the numbers stack up

This is how the numbers stack up in the short term for Vodafone. It has 18 million customers and so far 1 million have been enlisted into the free trial. Seventy per cent keep the service after the free trial ends, it says. That means currently 700,000 customers at £1×21 months or £14.7 million. Potentially, if this is replicated across the entire customer base it equates to 12.6 million customers at £21 or £246.6 million. It’s an uptick of £123.3 million per annum. Even when the licence and delivery costs are removed it’s still nice money.

However, this is not the whole story. If customers complain or enquire, Vodafone will see support charges rocket. And telecoms is already the most complained about sector in the UK according to the Ombudsman, with it having generated over 7 million complaints about telecoms providers last year (about 13% of all complaints). Some 18% of UK customers say they are resigned to poor service from telecoms companies.

And if customers are truly annoyed about being nickel and dimed they’ll churn. Last year Vodafone lost 300,000 customers net. If we take a fairly average UK ARPU of around £15 per month that’s £54 million per year lost. So if this little trick stimulates churn just a fraction, then that £123 million uptick starts to look  like a false economy. Add to that an increase in complaints and it will be wiped out in no time at all.

Lessons for MVNOs

Want to increase your customer base? Don’t nickel and dime customers. Stick to your promises. Don’t try and pull the wool over their eyes. No other provider is charging extra for security – just add this to the monthly charge if you must. And MVNOs, pay attention to that 18% of UK customers who believe telecoms providers deliver poor service.