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Optus admits overcharging customers

Optus CEO Kevin Russell has admitted that the telco has been overcharging mobile customers for years.

At an end of year media party, Fairfax Media has quoted Mr Russell as saying, “Let’s be crystal clear. As an industry, we know how people use their phones, we know young people will get their first smartphone and go bananas on it, we know people are going to get hit with a $500 or $600 bill, and we know that if they don’t complain we’ll get an extra whopping bit of revenue.”

Mr Russell also criticised data roaming plans, saying, “The idea that you’re on holiday and you get a $5,000 bill is a shocker.”

But he said that the telco, which is owned by Singapore Telecommunications (ASX: SGT), had taken steps to address what has become known as ‘bill shock’. In October, he said the telco industry need to tackle the problem of bill shock, and give customers certainty over how much their end of month bill will be.

Optus has steadily introduced more generous mobile phone plans that can limit the amount of overcharging, by giving customers higher allowances for data and call usage.

An enquiry by the Australian Communications and media Authority (ACMA) estimated that Australians spent $1.5 billion more than they need to every year, simply because they picked the wrong mobile plan. Telcos, including Optus, Telstra Corporation (ASX: TLS) and Vodafone – partly owned by Hutchison Telecommunications (ASX: HTA) – spent $108 million resolving complaints, and wrote off an additional $113 million annually in bad debts incurred through bill shock.

Complaints to the telecommunications ombudsman recently hit a five-year low, coinciding with the introduction of a tough new consumer code, designed to improve telecommunication services, and act as a guide for telcos to act in concert with their customers to eliminate bill shock.

Foolish takeaway

A telecommunications consumer group, the Australian Communications Consumer Action Network, says there remains significant scope for telcos to cut complaints. While Optus says it has taken steps to reduce bill shock, eliminating the problem across the industry should be a high-priority goal. It’s not clear whether Mr Russell’s admission opens up Optus to legal claims, but we may yet hear more about this issue over the coming days.

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Motley Fool writer/analyst Mike King owns shares in Telstra. You can follow Mike on Twitter @TMFKinga

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