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Telstra’s watchdog warning

You’re just getting back in to the swing of things after a relaxing holiday, only to find a monstrous global roaming bill staring you in the face. We’ve all been there, and if you’re like most of us you probably curse, and then end up paying the bill anyway. But it turns out you may be right to feel hard done by.

The Australian Communication and Media Authority has warned Telstra (ASX: TLS) for overcharging hundreds of thousands of customers for their data roaming. The excess billing, which totalled $30 million over the course of six years, has now been fully refunded to the affected customers. But the company has been reprimanded for not noticing the overcharging much earlier.

The ACMA’s report found that “Telstra failed to identify or address the underlying reason which led to the substantial billing inaccuracies that’s panned a period of a number of years. Had any of these been investigated, Telstra could have identified the cause of the concern”. The problem was caused by the way that international carriers generated their data use records – which resulted in multiple roaming charges for a single session.

Roaming charges are often a cause for customer complaints and some of Telstra’s rivals have seized on that opportunity. Singapore Telecommunications (ASX: SGT) subsidiary Optus has released a $10 a day travel pack that provides 30 megabytes of data as well as unlimited calls and texts for customers travelling to Europe, the UK, North America, and New Zealand.

Part of the reason that Telstra didn’t find the problem earlier was that its customer service agents gave the worst affected customers a credit rather than addressing the underlying cause. Telstra commented to the ACMA that the staff handling the complaints often had to deal with high call volumes and were “motivated to resolve the customer’s most pressing concern, which often results in a credit being applied”.

Drop in the bucket

Before investors start fretting too much, it is important to remember that the $30 million in refunds is minuscule compared to the company’s annual revenues. In the last 12 months Telstra took in total revenue of over $25 billion. It’s never good to have been caught overcharging customers, but the company’s policy of promptly crediting those customers who complained has mitigated most of the bad publicity.

Telstra is hardly alone. Across the Tasman Telecom New Zealand (ASX: TEL) has had to deal with its own complaints of overcharging. In 2011 the company was forced to admit to breaching the Fair Trading Act after misleading customers about their broadband data usage and over charging as a result.

Investors have to keep in mind the small relative size of the infringement, but also what it implies about the company’s pricing power. While people may gripe when they receive a large phone bill, most will still promptly pay it without digging in to the nitty-gritty. This type of customer behaviour means that the company has a lot more leeway to pass on price increases from suppliers. If you add a few fixed-term contracts in to the mix then you quickly reach the type of customer captivity that can build the foundation of a sustainable competitive advantage.

Foolish takeaway

Nobody likes being told off, but investors should remember the small size of the refunds relative to Telstra’s size and be satisfied that the company is only receiving a warning. Investors can also take solace in the pricing power that the overbilling implies. While a few customers complained, most paid their bills and were only refunded much later. If the company ever needs to increase a few charges to cover costs, then the odds are that it will be able to get away with it.

Discover whether you should buy, sell or hold Telstra shares in our new report, written by a top Motley Fool analyst. It’s free, click here for your instant download.

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Motley Fool contributor Matt Joass has no financial interest in any company mentioned in this article. You can follow him on Twitter @SoloThink.

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