One of the easiest ways an investor can get an edge over others is to be skeptical of claims made by companies because corporations are not always reliable sources of information, especially when they have a clear vested interest. It was with some interest that I noticed that Optus, which is partly owned by Singapore Telecommunications Ltd (ASX: SGT), has been ordered to run corrections regarding the false representations that it made in advertisements recently.
As I have repeatedly explained to readers, Telstra Corporation Ltd (ASX: TLS) has a clear competitive advantage over other telcos in the mobile segment, because its network is far superior. Although this was an obvious truth to anyone who travels in the regions, Optus made the highly questionable decision to run ads suggesting that the difference between its network and Telstra's network is far less than it really is. The Supreme Court of Victoria found that they were false representations and accordingly, Optus has had to publish a lengthy correction stating:
"The Court found that Optus falsely represented that the Optus mobile network and the Telstra mobile network cover 98.5% and 99.3% of the Australian landmass respectively when in fact the Optus mobile network covers… approximately 12.6%, and the Telstra mobile network covers… approximately 30.6% of the Australian landmass."
The correction goes on to clarify that Telstra's mobile network geographic coverage is "significantly greater" and that the differences are "material and substantial."
I believe that Optus is yet to understand the brand damage it will suffer as a result of overcharging customers and running misleading ads. Indeed, Josh Taylor of ZDNet reports that: "The Australian Communications and Media Authority has issued a formal warning to Optus over an IT upgrade error that saw 237,500 customers overcharged a total of AU$8.9 million, between July 2011 and September 2012."
Taylor further notes that, the Australian Communications Consumer Action Network (ACCAN) is warning Optus customers that: "Recent research by ACCAN, CHOICE, and the Consumer Action Law Centre discovered around one in five consumers are still receiving unexpected charges on their bill and of these consumers, almost 50 percent did nothing about it."
I must disclose here that I have received unexpected (though potentially legal) charges from Optus. I gave up trying to navigate the process that might result in a refund, as the customer service representatives were most unhelpful. Basically, my bill is often higher than I expect. Optus has not admitted to wronging me, and Optus probably made the likely total cost clearer in the fine print, which I didn't read. I take responsibility for that, but I'd love to have a plan that makes the likely total cost crystal clear from the outset.
What is clear, is that respectable consumer organisations believe that around 20% of customers are receiving unexpected charges. Furthermore, a judge found that the company has made false representations in advertising. What do these facts tell us about the way the company is run?
Meanwhile, Telstra is making the most of its free kick. Here's an advertisement I saw in the Sydney Morning Herald on the weekend.
Foolish takeaway
Telstra's 4G and 3G network is also the best – and in my view the mobile data network is more important than the mobile network. Travelling along the east coast of Australia, there are places where Telstra has 3G but Optus and Vodafone, which is owned by Hutchinson Telecommunications Ltd (ASX: HTA), do not. In my opinion, to listen to Optus on the subject of mobile coverage is about as smart as listening to coal miners when they talk about future demand for coal.
