/ Technology

How much are you really paying for your handset?

Mobile phone on money

Our chief executive Peter Vicary-Smith says it’s time for a heads-up on hidden mobile phone handset costs. Wouldn’t it be easier if the cost of your handset was separate from charges for calls, data and texts?

The mobile phone industry recently reached an agreement with the Government to increase signal coverage across the UK. The industry now has a three-year deadline for tackling ‘partial not-spots’ in the countryside where, if you happened to be with the wrong network, you’d be utterly stuck if your car broke down, or you had an accident.

This is welcome news, but there are other gaping holes that this industry needs to address urgently, too. One of them is right in the middle of my mobile phone bill in the place where it should tell me where my money is going.

Any mobile phone company – and there are several – which fails to split out what you’re paying each month towards your handset from the amount you pay for your service is not being fair. It means that customers who have completed the contract period, thereby paying for the handset, then get the pleasure of paying for the handset all over again if they carry on, as many do.

Overpaying for your mobile phone

Here’s an example, based on an iPhone 6. On O2 Refresh you’d pay £48 a month for 5GB of data and unlimited minutes and texts. Of this, O2 is clear that the handset portion of the bill is £25 – so after the contract is up you pay £23 per month.

On a similar plan with Vodafone (4GB of data and unlimited minutes and texts) it costs £48.50 a month – but that price doesn’t change once you come to the end of your contract. So if a customer does nothing, they are overpaying by not moving to a Sim-only deal. If they decide to upgrade their phone, they sign up to a new contract so any ‘overpaid’ months don’t count towards the new handset.

There is good news in that four of the seven biggest mobile operators have started separating out handset costs: O2, Giffgaff, Tesco and Virgin.

Billions wasted on the wrong contract

Mobile customers are already overpaying to the tune of £5.4bn a year, because 72% of those on a contract are on the wrong tariff, wasting an average of £159 each a year. It can’t be beyond companies’ wits to help their customers find the right one. It’s time this industry filled in the information holes that are costing its customers dear. You can help by joining our campaign calling on all mobile providers to unlock better deals for customers.

Do you agree that the cost of your mobile phone handset should be split from all service charges?


I don’t have a great deal of trust for mobile phone companies, having looked at the thousands of comments posted on Which? Conversation and from the experience of friends and family. It is good to see that one of the network operators and several companies that make use of the networks have separated the handset cost and tariff for use.

My main phone was purchased outright and is unlocked. I wanted to go for a one month rolling contract but thanks to discount, it worked out better to take out a one year contract and I insisted on written reassurance that the monthly price would not be increased, and after about 10 months I have not been charged a penny more than I have expected.

I guess I’m the only person left on the planet that doesn’t have a mobile phone. I’ve never believed they’re good value.

And even though I don’t have a mobile, I still know more that them than many. e.g. Roaming charges.

I’m impressed you don’t have a mobile, William. I do sometimes wonder why people have them. My dad, for example, just keeps his in a drawer turned off – that’s no use to anyone! What’s your reason for not getting one? Do you think the benefits don’t out-weigh the monthly costs?

I have a mobile phone but seldom use it. It’s also turned off nearly all the time and I rarely give anyone my mobile number, especially not commercial organisations – why would they need it? Virtually everything I need to do in life is either face-to-face or landline-to-landline. I suppose I should get out more.

William, do you use phone boxes to contact people when you are out and about?

My brother does not use his mobile, it just sits in the car all the time but he supplies his mobile number in most cases when he is asked for a telephone number. He has not set up voicemail on his mobile and he never receives a nuisance call.

I have a simple PAYG mobile ‘phone which I carry only when I am out and about in case of emergency. Most of my outgoing calls are to my home ‘phone at appropriate intervals to make sure that my service provider does not disconnect me. I have had to top-up the payment once since buying the ‘phone several years ago so the running costs and the amortisation of the cost of the handset have been very low.

Judging by comments in this Conversation and various others, I reckon there’s a large number of mobile users like us who choose to have a portable phone mainly for exceptional and emergency purposes, bought the phone outright, and use PAYG. Anyone has the option of doing it this way and avoiding heavy charges, although having got into the mobile phone lifestyle the majority of users would not find this pattern acceptable since they enjoy being able to call people whenever it suits them and being open to interruption themselves. It’s good that we now have these choices. Personally, I feel liberated by not being at other people’s beck and call. Of course, the downside is that if I need to look for economies, curtailing my mobile phone costs is not an option – they’re already at rock bottom.

What forced me to switch from an infrequently used PAYG phone to a contract that included calls to mobile numbers was the high cost of calling mobiles from a landline. Although my landline tariff included calls to mobile numbers in the evening and weekend, I was having to make expensive daytime calls people who were hard to contact on their office phone and one who worked between offices and did not have a landline. The secretary of a charity I work for prefers calls to his mobile number out of respect for his wife.

Using the mobile to call landlines means that I don’t need to worry about the cost of making long calls. I’m looking forward to a time when calls to mobiles are treated in the same way as costs to other landlines.

One of the reasons I hate mobile phones is that there is only one handset for a number, whereas it is easy to have a landline handset in each room. I often use my handsets to play the game of ‘find the mobile’ by calling the number and listen for it ringing.

When at home I use my PAYG mobile to make relatively infrequent calls to other mobiles, as it is significantly cheaper than my landline tariff. My family have inclusive mobile contracts so they usually terminate our call and phone us back.

I must admit to the versatility of smart phones. Sat Nav, price comparison apps, mobile banking, restaurant deals, although I don’t think I’d bother with tv or films. But I think I already spend (waste?) enough time looking at information online – because it is so easy – and working on my laptop that another distraction would stop me doing more constructive things. Time to get in the garage and make some furniture, if only it wasn’t so cold!

John – I can identify with what you say about not wishing to be on call at all times. My friends know that I prefer to chat when I’m at home in the evening. If anyone persists in calling my mobile I ring them back in the evening unless they leave a message and it’s something urgent.

Separating out handset costs is a good start.
Splitting the contract into 2 independant parts is the next stage and would provide consumers with more transparent options.
24month handset contract, + monthly rolling contract for airtime should be one option.

I expect that the companies would offer a bundle of both contracts and maybe some other goodies at a significantly cheaper price than these separate contracts. If not, then a discount might only be available if the contracts are bought together.

I’m sure you know better than most of us what lengths companies will go to help make it difficult for us to make simple price comparisons. 🙁

Agree, we effectively have bundles now which is the problem, but this is true for other services such as broadband,tv & phone.
I suppose the main issue is the lack of stand alone contracts for buying a phone over 24 months.

Perhaps I am missing something, but it might be better to use a credit card to buy the phone then you are not restricted to a particular duration of repayment or amount of repayment each month [subject to the minimum required]. Unless you want a special version or have certain image concerns, you can usually get a decent mobile phone for no more than the starting price of a contract-repayment phone. Since almost everyone who buys a mobile phone has one already, it’s hardly a must-have buy-immediately purchase requirement so one could possibly even save up for a new one.

I don’t expect Sky or TV Licensing to subsidise my television. I don’t expect my ISP to subsidise my laptop. I don’t expect oil companies to subsidise my car. Why do consumers expect mobile networks to subsidise their handsets? I paid £629 to Apple for an iPhone 6 64GB and I pay zero to Giffgaff for my mobile service, given that Giffgaff gives me around £30/month of free credit (known as “payback”).

We need an end to the upfront price of mobile phones being subsidised by monthly service charges because this:
– Encourages consumers to acquire handsets they cannot truly afford through an unhealthy “buy now pay later” consumer debt culture with a disguised loan from the mobile network.
– Distorts competition by disguising the true price of the handset and of the service, as opposed to a SIM-free handset and SIM-only service.
– Encourages wasteful acquisition of new handsets because consumers mistakenly believe they are receiving the handset for free or for very little.
– Necessitates long contract durations in order to spread the cost of the handset, which inhibits competition by preventing consumers from switching networks.
– Causes consumers to continue paying the inflated monthly charge even after they have paid off the subsidy of the handset, unless they remember to take action at the end of the minimum contract period.

Subsidised handsets are usually SIM-locked which:
– Inhibits competition by making it more difficult to switch networks.
– Prevents consumers from using local SIM cards abroad, allowing UK networks to impose unreasonably high roaming charges by excluding foreign competition.

I was looking at Giffgaff but my existing service provider offered me a good deal on a one year contract when I phoned for my PAC code. It’s nearly time to start looking at prices again. How on earth do you get Giffgaff to pay for your phone service when you have bought the phone separately?

Giffgaff gives “payback” to customers who help other customers by responding to questions in its forums. Most questions are not account-specific and can be answered by any knowledgeable customer, which significantly reduces giffgaff’s staffing costs. I find that I need to answer only a handful of questions each month for the “payback” to exceed my monthly charge for the service. Therefore I get free service. I also receive £5 for each customer whom I introduce to giffgaff, and the new customer similarly receives an additional £5 credit.

Giffgaff is owned by O2 UK, so unlike Ovivo (another MVNO that offered free service but which went bust), it has financially solid backing. The main reason that I moved from EE to giffgaff was because of O2’s superior coverage, given that EE’s coverage had been deteriorating following its decommissioning of non-duplicate masts.

Thanks NFH. I’m glad that we have knowledgeable customers because some of the staff employed by the phone companies do little to impress me.

millardski says:
16 February 2015

NFH I’m currently on an o2 contract paying £8 a month because I’m a very low usage customer. My iPhone 4 (8GB) has been paid for and is now my own (although I understand it’s only worth around £30 now!). What I need is a Mobile Phone, a Camera and an iPod for a large amount of my music ~ I’m also an Apple Macbook Pro user. Do you think my best bet is to go out and buy outright a 64GB iPhone 6 and carry on with my £8 per month o2 contract. There don’t appear to be any deals when buying the iPhone 6 outright, would you say that was true? How different would you say is my o2 contract compared with what might be available with GiffGaff?

Cathy says:
28 January 2015

I have just upgraded my Virgin Mobile and was unexpectedly impressed at how clearly the cost was explained & split out e.g this much per month for your tariff, this much for the handset (which you can pay off whenever you like), free to change tariff whenever you like & separate charge for insurance.
They even told me that my risk aversion in plumping for totally unlimited tariff would be a waste of money for me looking at my useage history & popped me on a cheaper one.
I also initially went for a all singing all dancing model based on the camera functionality & when I couldn’t get on with it, they replaced it without fuss with the phone of my choice.
I’m not saying they’re all perfect however Virgin really impressed me with this upgrade vs the last time I did this.

Seems rather ironic to talk about mobile cost and not allude to the $18B quarters profit made by Apple. The biggest profit made in a quarter ever. Is this just that there are style addicts who will buy at any price? Should they be protected from extortion by new model ! ? : )

However Apple does play a game:
“Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains. California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.”

As consumers, and taxpayers, it seems rather poor form. The less the company pays the more citizens pay. Apple apparently is quite an innovator on tax avoidance and now much copied. Its tax known to be paid is less than 10% rather than 24% normal companies pay in the US. All this from an excellent piece in the NYT from April 28th 2012. Around that time Apple had around $74bn in cash sitting off-shore which it would not return to the US unless it and similar companies got a big tax break on this off-shore money.

I’m not keen on Apple as a company and I’d like to see the end of tax avoidance too.

Apple don’t twist your arm to buy a contract covering both usage and the phone, at least if you order online. They are also the only company I know that includes information on their website about consumer rights after the expiry of the warranty.

I suppose the point is that their phones are hugely profitable and yet whilst Which? justifiably looks at the contracts it says nothing about the iPhones being obviously very overpriced. That consumers in the UK keep buying may mean that they have no real idea as to mark-ups and profits on mobile phones . If they were better informed perhaps they might realise what is occurring.

Incidentally I see that the BBC mentions them today and the net cash mountain is around $142B after buying back $35B of shares.

In this Conversation, we are being alerted to some of the problems of buying phones via the usual contracts. The iPhone is used as an example, but the same would apply with other brands.

Whether it is a phone, a loaf of bread, a car, or energy, we don’t get to know much about what percentage of what we pay goes to the manufacturers, retailers, etc. In the case of Apple, at least we know that the manufacturer is making a very healthy profit.

Not only do the Apple fan-boys and girls round the world buy the phones but they do a lot of marketing without being paid, by showing their latest toy to their friends. There is immense peer pressure affecting phone purchase, and it’s not just with Apple.

Many of us buy expensive items when cheaper products might make more sense. Assuming we intend to go ahead with the purchase, it makes sense to explore the alternatives for purchase rather than just accepting what the companies are pushing.

The Joker says:
28 January 2015

Mobiles seem to be a way of life for most. My father in law however hated them and only though family pressure bought a pay as you go handset.He never had it on, when we called it always went to voicemail . Ironic that he was unplugging it from charging over night 2 years ago and never got to turn it on. In a sad way the item he resented ended being linked to his death that morning. I however have a works mobile and while I see the operators making obscene profits and think it’s about time of com got a grip with it.

Joker – My son bought me an Motorola smartphone for Xmas. He seems to be under the assumption that I had not considered whether I needed or wanted one. And with a laptop and several PC’s of my own I am hardly a technophobe.

I have a nine year old Nokia which I can use if I want to make a call or want to be available.

My observation is that for many people the instantaneous nature of smartphone/phones seem to negate forward planning thoughtfulness, make people reliant on dubious websites for information/entertainment, and lessens peoples opportunities/time to actually relax and think for themselves.

Other than that they are very convenient way of seeing content but in a very tiny format with information twisted to look graphically wonderful rather than information heavy as its primary aim.

This may be to the liking of many who have a short attention span or time but it does mean in-depth articles are becoming exceptions.

It may not be appreciated that journalists articles can be measured remotely by the time that on-line readers dwell on the content. If you believe that short snappy articles are what is most read how much effort goes into the longer articles being commissioned or published.

There are noteworthy exceptions like Pro-Publica, Economist, and a few others were matters are examined in some depth.

Being given a phone is one way of separating the cost of the handset from the cost of using it. 🙂

Anyway, your son probably thought you might like to keep in touch with what’s happening on Which? Conversation when you are out and about.

I bought a Moto G smartphone, sim free, and only use it when I want to check a website when I’m out and about. I kept forgetting to charge it and was unable to stay in touch with family or friends when I was away from home. I now leave it switched off until I want to use it and carry a cheap sim free Nokia 108 that holds a charge for over a week. It is always ready for phone calls – as a phone should be – and I can use a second sim card if I’m abroad or in an area where reception is bad. Not bad for £25.

There is a wish here for companies to treat you fairly! Many don’t exist to do that. They will make as much money out of you as they can until you realise what is happening. Apple will sell overpriced phones and make huge profits because people choose to pay those prices. They avoid tax (as opposed to evade) because they can. Be honest – would we not avoid tax if it were possible?

I don’t condone this, but we don’t have to buy overpriced phones or expensive contracts, but we do need organisations like Which? to advise us when something is a bad deal.

I stick with my 8 year old Nokia that cost £30 on a Tesco PAYG Lite tariff that costs me around £40 a year. But I only need to make occasional phone calls and the odd text.

Have you bought any new jewellery lately – see what that costs to produce (or sell second hand) compared to what you paid. We are in a hard world where your wits are constantly needed!

The upside of paying Apple for an overpriced iPhone is that resale values are much higher than for other phones.

Anyone contemplating selling their phone should be aware that many people have had problems, whether they have used a company specialising in buying and selling phones, or via private sale on eBay etc. There’s at least two Conversations where sorry tales have been posted.

My view is that it’s worth asking yourself whether you need the latest, greatest phone. How long a phone will perform adequately for depends on your needs and how well you look after it.