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Why Orange’s price hike isn’t as fair as it seems

by Marrick on March 11, 2013

I’ve just had notification from Orange that my two accounts with them (mine and my son’s) are going up from April “because of inflation” by just over 3%. On the surface this seems fine – that’s roughly the rate of inflation, but if you consider that a large element of the bill goes to paying for the capital cost of your phone which is a fixed point in time cost, it suddenly becomes unreasonable.

This is clearly illustrated by the fact that my SIM only account has gone up by £0.22 per month, but the phone and SIM account has gone up by £0.84 per month, despite the fact that nearly £20 (the difference between the price of the SIM only account and the SIM plus phone account) of the cost is simply paying for the original cost of the phone, which in itself is extortionate (£20×24=£480 – you could actually buy a SIM free phone of the same model for about £200 retail price, and I’m sure Orange buy them for far less), even accounting for interest. Interest rates haven’t gone up, so the cost of money to them is no different, which means they are increasing prices to secure additional revenue to their business and the consumers have no choice but to pay it. (Clause 4.3.1 has now changed to disallow the customer from cancelling their contract if “we give you written notice to increase the Charges (as a percentage) by an amount equal to or less than the percentage increase in the All Items Index of Retail Prices or any other statistical measure of inflation published by any government body authorised to publish measures of inflation from time to time, and published on a date as close as reasonably possible before the date on which we send you written notice”).

These are small amounts admittedly, but given that I’m contractually obliged to pay them, as are the millions of customers they have (in 2009 Orange had revenues of €5.1 billion), then you have a huge inflow of capital into the phone service provider for no extra service and predicated on no additional costs.

Obviously, they say that the cost of their business has gone up by roughly that of the increase in RPI, so they have to increase their revenue by a similar amount. This means there is no linkage between the charges for their services and the cost of their business. Instead, they have linked the costs of their business to the revenue they receive.

If I had bought the phone in a separate deal on hire purchase, or from a personal loan, I would not expect the monthly cost of my loan to increase to pay the increased costs of the phone service provider. So, why is the reverse true when the phone is bought through the service provider?

This, more than anything, illustrates that modern capitalism is cost based, not service based and gives the lie to the notion that private enterprise is more efficient than public enterprise. In other words, you don’t pay a fair price for what you get; you pay a price determined by the needs of the business.

One thought on “Why Orange’s price hike isn’t as fair as it seems

  1. Mike Mckay says:

    Thats a good article and echos the “free” market in its entiriety

    Companies try and unfortunately often succeed in giving their shareholders increased profits year after year, and that very thing is often cited as the reason for price hikes or service reductions

    But even in a healthy economy thats not really a reasonable expectation. after all we arent talking about someone either getting or not getting dividends from their shares, we are talking about people expecting and demanding increased dividends year on year even if those returns are pretty good to start with. So once the genuine operational problems are fixed, efficiency is at 100% what then?

    Thats where the CEOs have to start freezing pay and benefits, moving jobs to third world countries and giving less service for the same money etc

    Not because of the economy, not because theyre barely breaking even but quite simply because their shareholders think profits not only “can” but infact should increase year on year ad infinitum which is a ludicrous expectation let alone demand, but is one that is ridiculously common nowadays and the only people who suffer are the customers

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