Here's the trap Optus and Telstra are using to lock customers into longer contracts

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Optus is joining Telstra in giving customers on 24-months plan the option to upgrade to a new phone halfway through their contract.

Announced this morning, Optus’ new big push with its postpaid plans will allow customers to trade in their old phone, pay a one-off $99 fee and then recontract with the telco for another 24 months.

Telstra has been offering its New Phone Feeling, which is much the same for over a year now, but with a higher fee of $149. Although when Telstra launched its version, it was smarter, offering it as an option for a customer to sign up to when they joined the network for just an extra $10 a month.

The whole idea is to keep customers locked into the carrier, essentially turning what looks like a 24 month contract on the surface into a 36 month or a 48 month one without you realising. It’s great business, where the carrier wins in every scenario by building upon consumers needs to have the latest and greatest. The fact that the offerings exist plays on the FOMO (fear of missing out) mentality and make customers feel like they need a new phone every year, and they’re willing to pay for it.

Let’s use the iPhone as an example, the highest selling phone in Australia. When it was announced in September 2014, Optus was selling the more popular 64GB model on an $80 plan with $6 per month handset repayments.

If you signed up to that plan in March 2015 and wanted to upgrade now, 12 months later and move to another network, Optus will charge a customer an early termination fee and the remaining phone charges, which would work out to be $1032. If you sold your iPhone now on eBay or Gumtree, the average selling price is less than $700, leaving you over $300 out of pocket.

It makes no sense financially to do that. So the carriers step in to save the day and make sure you don’t miss out on grabbing the new iPhone, you just have to commit an extra $99+ to them upfront and then your wallet to them again for the next few years, and then a few more years after that.

A few years ago, if you were a savvy customer you were able to get away with selling off every 12 months to hunt for the best value telco. Carriers at the time were pushing their best value on plans in the $60 per month mark, which meant your final termination fee would be around the same worth of your phone after 12 months. I used to be someone who would take advantage of this, selling an iPhone 3GS and HTC Desire HD to upgrade without ever taking a hit. But in the last three years, carriers have been gradually pushing their best value up to the $80 tier mark, meaning that final payout figure no longer makes it viable.

It’s marketing and business genius by Telstra and Optus, but at the end of the day, for the consumer they’re better off sticking their initial contract out and then fishing around for better deals.

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