Telstra expects customers to dig deep for new iPhone

Rivals are chasing Telstra's tail, trying to catch up any way they can.

Owen Raszkiewicz

Owen Raszkiewicz is a Motley Fool Contributor. Owen has been a Contributor since 2013, having also spent time as a Fool writer/analyst. He also worked as an Investment Analyst at Zenith Investment Partners, Australia's top research house specialising in managed funds. Owen has appeared on Channel 10's The Project and was invited on the BBC. He holds a Masters of Applied Finance, Masters of Financial Planning, Bachelor of Technology, Advanced Diploma of Financial Services and Diploma of Mortgage Broking Management. In addition, Owen has passed Level 1 of the Chartered Financial Analyst (CFA) Program. He has taken the Banking + Finance Oath (BFO). When he is not writing, Owen is Managing Director of Rask Finance, an Australian financial education company. You can email him: [email protected].

Published September 18, 2013 9:55 am AEST

For years, Telstra's (ASX: TLS) network coverage and reliability, rather than customer service or competitive deals, have enabled it to grow and become Australia's premier mobile carrier. As growth in retail customers here in Australia begins to dwindle, the telco is turning to its product offerings and customer service to draw customers away from its competitors.

Well… that's until the new iPhone 5s and 5c are available.

Since Australia has only three major mobile providers, if two decide they want to hold back on price discounts and sell at a premium, the other will usually follow suit to bolster profits. So far we've seen Telstra and Vodafone – part owned by Hutchison Telecommucation Australia (ASX: HTA) – put a premium on the purchase of the new iPhone plans.

Macquarie Private Wealth says the telcos are looking to boost their profits and expects Singapore Telecommunications' (ASX: SGT) Optus to do the same. Vodafone customers can expect to pay anywhere between $67 and $83 per month over 24 months on a $65 Red contract for the iPhone 5s whilst Telstra customers will pay between $71 and $90 per month over 24 months on the $60 Every Day Connect plan.

According to The Australian Financial Review, our carriers, including Optus, are passing on prices to customers because the previous discounts on Apple products put significant pressure on profit margins.

Winning customers from rival networks could prove to be harder than anticipated because of the renewed focus on customer service by Telstra and our biggest carriers. However, customers are now focused on costs hidden behind the scenes such as roaming and excessive data fees.

Foolish takeaway

Company management often makes the choice between giving more away to drawn in new customers or raising prices to buffer profits – we're seeing the latter with the new iPhone 5s and 5c. However if the stock price says anything about the new iPhones it's that they're overpriced.

Source: Google Finance

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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