A Vodafone price increase has drawn fire from a number of customers - and a consumer watchdog says they could have a point.

The telco imposed a $3 increase on all customers on a residential broadband plan - copper or fibre - last month.

Vodafone customer Jon Reeves said he only learned about the price rise when he saw it on his February broadband bill.

Reeves felt trapped because he still had six months to run on his 24-month contract.

Advertisement

"After many attempts to talk with someone at Vodafone, the person I finally managed to speak to said that as they are increasing the prices customers are allowed to terminate their contracts."

He added: "In no communication have I received any advice from Vodafone that I had an option to terminate my contract without any penalties due to their unilateral change in the broadband pricing."

Beyond the question of how the price rise was communicated,Consumer head of research Jessica Wilson says companies should not raise prices on contract customers unless there are exceptional circumstances.

"We've got a major beef with companies increasing prices for customers on fixed-term contracts. When you sign-up for a fixed-term, the price you pay should remain the same during the term of the contract," she said.

"The only reasonable exception would be if GST - or other mandatory levies outside of the company's control - went up," she said.

"In this case, we don't think Vodafone has clearly explained the reason for the $3 price increase."

Vodafone is offering customers the chance to break their contract without a fee if they signed before February 1 - albeit with customers who contacted the Herald being unaware of that option).

However, Wilson cautioned: "In our view, terms and conditions that allow a company to impose price hikes during a fixed-term agreement are likely to breach the Fair Trading Act's ban on unfair terms in consumer contracts."

Vodafone chief executive Jason Paris said his company was, in part, passing on a wholesale price increase from Chorus.

While Chorus put up its pricing by less than $3 per month (the wholesaler is restricted to a $1 per month increase each year under its UFB contract with the Crown), Paris says his company had held pricing for an extended period, and was passing on cumulative increases.

There were also other factors behind the price rise including rising infrastructure and maintenance costs, he said.

"We don't like passing on price increases. But a lot of New Zealanders and businesses don't understand a large part of what they pay for broadband is a regulated price that we have to pay, and that regulated price increases," Paris said.

"It's something the whole industry faces. So we try to resist passing on those costs to customers, but it gets to the point where it's just unsustainable for us to hold it."

"We still think that with all the benefits we bundle, like Vodafone TV, that we're very competitive."

The Vodafone boss also noted his company was not the only one to raise costs. Spark increased pricing on its copper broadband plans by $5 a month from October 1.

Vodafone customers were told about the $3 price rise in December. There was no email or text message sent to customers. Instead, the price rise was communicated on customers' bills.

"We've tried email for this type of communication, [but] we've found it to be ineffective, as customers may ignore it or delete it without reading, perhaps mistaking it for a promotional offer or marketing material in which they're not interested. "

Paris said he hoped a recently passed law change would give his company a degree of freedom from pricing dictated by Chorus.

Last week, Vodafone and Vocus (owner of Orcon and Slingshot) demonstrated unbundled UFB fibre at a Parnell, Auckland.

An overhaul of the Telecommunications Act, which comes into force on January 1 next year, allows for UFB unbundling - or the ability for retail internet service providers to add their own electronics to fibre laid by wholesaler Chorus.

Paris said unbundling would give retail telcos such as Vodafone more control over the types of broadband services they offered, and at what price.

Vodafone and Vocus are hoping for lower prices from Chorus with UFB unbundling, but the wholesaler has yet to put its first offer on the table. It's possible the Commerce Commission will have to referee at some point.

Vodafone's $3 price increase comes against the backdrop of a restructure that insiders say could see hundreds of the telco's 2800 staff axed.

Paris says no decision on headcount has been made, and won't be until the start of March. Offshoring and outsourcing option are on the table, but again nothing has been finalised.

"What I can tell you categorically is that we won't make any decision that impacts our customer experience. We know we need to get better," Paris says.