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The hidden cost of your mobile contract

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Our latest research has found that mobile customers are collectively losing out on billions of pounds a year by being on the wrong contract for their usage. When was the last time you switched mobile contract?

As I’m sure most people who have recently gone through it will agree, changing your mobile contract can be a pain. And with two year minimum contracts now standard, there’s even more pressure to make the right decision.

This shows in the number of people actually switching – nearly half of people on a mobile contract have never switched. Of those that have switched, four in 10 switched over four years ago.

That means there are hell of a lot of people on contracts that aren’t right for them. In fact, we’ve worked out that mobile users are collectively losing out on £5.4bn a year, either by paying for texts, minutes and data they don’t use or paying extra charges because their phone package is too small. That’s £159 per person, or enough to subscribe to Netflix for more than two years!

Switching mobile phone contracts

Even when people know they’re on the wrong deal, they’re reluctant to switch due to the many barriers in the way. For example, mobile companies don’t always notify you when your contract’s about to end, they require 30 days’ notice if you want to switch and charge you to unlock handsets you’ve already paid for.

Then there are all the different tariffs available. Do I want to pay more for the phone upfront, or pay nothing and pay a higher monthly tariff? And exactly how much are you charging me for that new iPhone 6 compared to the cost of my minutes, text and data? It’s all just so confusing.

Part of the problem is that we’re never really comparing all the deals. Most of us are offered a deal by our existing provider in return for our loyalty, but there’s no real way of knowing whether someone else is being offered an even better deal somewhere else. And the system is set up so that you have to do all the leg work; cancel your old contract, get your handset unlocked, get your PAC, time the new contract so you don’t lose service…

This is why we want the system to change – we want Ofcom to introduce a system where the provider you’re moving to is responsible for the switch. This is similar to how it works with banks and energy companies.

The mobile industry needs to change

We also want mobile companies to make voluntary changes. They should:

  • Notify you a month before your contract ends so you have time to look for better deals.
  • Give you your average usage stats so you know whether the deal you’ve spotted is right for you.
  • Show the monthly cost of the handset separately from the service charge.
  • And automatically unlock handsets for free.

These are steps mobile companies need to take if they’re going to restore consumer trust, which is currently lower than the banks! It’s a wake up call the industry cannot afford to ignore. Nor can they ignore your support for our campaign.

Comments
Profile photo of NFH
Member

We need an end to the system where consumers have no reasonable option but to buy their mobile phone usage in monthly allowances or bundles of minutes, texts and data. Imagine if we had to buy electricity and gas in this way – guessing how much you will consume in a month and then wasting any units that you don’t use by the end of the month. Consumers wouldn’t tolerate it with energy, so why do we tolerate this practice with mobile phone services?

If you don’t buy your mobile usage in allowances or bundles, then the per-minute, per-text or per-megabyte charges can be prohibitively high. The only network that offers reasonable incremental pricing is Three – 3p/min, 2p/text and 1p/MB. Not even Giffgaff, a Which best buy, comes close to this – charging a whopping 20p/MB (£200/GB) after the first 20MB each day, yet it offers a monthly bundle where a gigabyte costs just £7.50.

The only purpose of monthly allowances and bundles is to charge the consumer in full for usage that isn’t fully consumed and to charge prohibitively high rates for any usage over the monthly allowance or bundle. This practice favours the networks without giving any advantages to consumers. It’s fine to offer volume discounts, e.g. reduce the incremental price per minute, text or megabyte after certain usage level each month, but forcing consumers to pay for usage that they don’t actually consume is absurd. Again, I ask why we wouldn’t tolerate this practice for energy but we do tolerate it for mobile phone service. This needs to change.

Profile photo of John Ward
Member

Looking at the thumbs up/down signs, I am left wondering who would not support your comments NFH, and why. I agree with you wholeheartedly and I cannot begin to understand why masses of people have fallen for these contracts. Yes, PAYG is expensive but the high price sort of moderates use which puts time back in your day [unless you think you really can do two things well at the same time].

Profile photo of NFH
Member

PAYG is expensive only to force people into buying bundles. If the networks can offer postpaid incremental tariffs as “corporate tariffs” (see below) and Three can do so at reasonable prices on PAYG, then they equally could offer them to retail consumers.

Profile photo of wavechange
Member

Over the years I have been fed-up with mobile service providers moving the goal posts. Here is one example. Not so long ago, credit on a Three mobile phone expired after 30 days. I discovered this when I tried to use the spare mobile I keep in the car, which had been unused apart from a test call. I got a new Three SIM after Christmas now that they have removed the expiry clause, and was pleasantly surprised to find I still had £9.97 credit after a test call.

Profile photo of malcolm r
Member

NFH, PAYG is only expensive if you use it a lot. I don’t. I make necessary phones calls, occasional texts, and that is all I need. I very occasionally top up my £30 phone with £10 to cover 3 months or so. Between us Mrs R and I spend less than £60 a year on mobiles. We have a landline at home, though, and use our PC and iPad for internet access.

I really don’t know why people need to make such huge use of mobiles and what they did before they were available. Not a criticism, just a personal point of view 🙂

Profile photo of wavechange
Member

Malcolm – Until less than a year ago, I had a PAYG mobile and did not use it often. The main reason I moved from PAYG for my main phone was the high cost of daytime calls to mobiles from my landline. My landline tariff covered evening and weekend calls to mobiles and some of the people I have to contact during working hours only have mobiles.

Hopefully the cost of calling a mobile from a landline will plummet soon.

Profile photo of John Ward
Member

Our use of mobile phones is even more economical than Malcolm’s I should think. Apart from the other reasons, we also regard the mobile phone as an inferior instrument for a proper conversation. When we are out we have no desire for people to call us so we only use them for making very brief calls or texts [e.g. to have a taxi meet us at the station].

Profile photo of NFH
Member

Malcolm, you say “PAYG is only expensive if you use it a lot“. This is precisely my point. Why should heavy users be forced to buy bundles or allowances in order to pay a reasonable price for their consumption? It’s absurd that one has to predict one’s precise consumption in advance and then pick a bundle or allowance just above this amount. We wouldn’t tolerate this forced prediction nonsense with electricity or gas, so why do we tolerate it with mobile phone service?

If this happened in the energy sector, Ofgem would clamp down on it quickly, but when it happens in the telecoms sector, Ofcom allows it to become the norm.

Profile photo of malcolm r
Member

NFH, agreed. Incidentally, on costs I was amazed to find the large amount that is spent on communications: “On average, energy and communications household spend is at 5% and 4% of total household spend, respectively.” This is from a report issued by the UK Regulators Network (UKRN) – another body that looks over the activities of Ofgem, Ofwat, Ofcom, etc. But averages are very deceptive.

In a way energy contracts requires a sensible assessment of annual usage to pick your best deal – balancing gas against electricity tariffs and standing charge vs unit cost for example. Not perhaps as extreme as telecoms, unless you choose a unit-only tariff and then find you use a lot more than you estimated – it can be very expensive.

Profile photo of wavechange
Member

I don’t think it will be long before the cost of phone calls becomes trivial and the companies will be making most of their money from other services available via mobile phones including selling/renting new handsets, phone insurance, and so on.

I’m currently paying 50p per day for unlimited calls, which does not seem unreasonable since it includes an adequate download allowance. Having said that, I very much support moving towards paying for what you use. You can no longer buy current Adobe software and it’s very expensive to lease unless you use it regularly. Microsoft is heading the same way with Office 365. It’s about time we had the option to pay according to the amount we use software.

Profile photo of NFH
Member

I would also like to see unbundling of the goods and the service to promote competition and transparency. We need an end to the cost of mobile phones being subsidised by monthly 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.

For these reasons, Ofcom should encourage unsubsidised SIM-free handsets and competitive SIM-only contracts to become the norm, as is common in many other countries. At the very least, networks should be forced to unbundle the monthly handset subsidy repayment and the monthly charge for service (as O2 has started doing), itemising the two separately with independent contract durations and an APR for the loan (as Giffgaff is doing). The monthly handset subsidy repayment should not be allowed to continue after the cost of the handset has been paid off.

Profile photo of malcolm r
Member

Many mobile contracts will be taken by public services and company phones where the user never sees the contract, and the bill paying department doesn’t scrutinise terms and ongoing costs too closely? Maybe if they formed a user group they could get more sensible contract conditions through by force of numbers. For private users, maybe like the Big Switch in energy, Which? could get a competitive deal with sensible contract terms if enough people were prepared to join in?

I’m sticking with my Tesco Lite PAYG on my 8 year old Nokia.

Profile photo of NFH
Member

Malcolm, the main mobile networks all offer “corporate tariffs” to large businesses and public sector organisations. In the same way that nobody would tolerate having to buy energy in monthly bundles and allowances, these large customers don’t tolerate this practice with their mobile phone services, as they would generate significant wastage of thousands of fully-charged but partially-unused bundles or allowances every month. Consequently corporate tariffs are billed in arrears on a usage-only basis, similarly to Three’s 3p/min, 2p/text and 1p/MB, albeit at lower prices than Three. The “force of numbers” to which you refer therefore already exists with corporate tariffs. I’m advocating (see my first post above) that similar postpaid incremental tariffs should be offered to retail consumers as well. If this became the norm for retail consumers as it already is for large corporates, then the problem of “being on the wrong tariff” would largely vanish.

Profile photo of malcolm r
Member

NFH, thanks for your reassurance. I imagine private customers are subsidising commercial ones to some degree. Commercial deals should be cheaper because of scale, but just how much difference is there between private and commercial? Do we know?

I looked at how government puchases mobile voice and data services and I tracked down this guidance document:

“http://ccs-agreements.cabinetoffice.gov.uk/sites/default/files/contracts/Simple%20Guide%20to%20Buying%20from%20the%20PSN%20Frameworks%20v4_1.pdf”

It seems that this leaves the negotiation down to individual departments or organisations setting up a “competition”, with the responsibility of defining their requirements. This is where I worry about the competence of those involved. Why not have an administration-wide agreement for mobile phones that the whole organisation subscribes to, properly monitored?

I seem to remember the NHS buys its huge quantity of supplies not with centrally-arranged prices but through its separate area units each making their own deals. Prices were widely different for the same product. If this is still the case I expect mobiles will be no different. Or am I too cynical?

Profile photo of NFH
Member

The other point to note is that corporate tariffs are often available to the workers themselves (including their families) for their own private phones. Often you don’t need to be an employee because the main qualification requirement is a work e-mail address on the organisation’s domain name. Consequently I once acquired a corporate tariff from an investment bank where I was working and I kept it for three years after I left until the investment bank changed networks. The investment bank had been turning a blind eye to this widespread practice by departed workers because it inflated the network’s perception of the bank’s total expenditure, allowing a greater volume discount.

Profile photo of malcolm r
Member

NFH – lots of this sort of discrimination takes place. Unions negotiate better deals than generally available for their members, companies do so for their employees. so do public services. Others not so fortunate will pay a higher price because of this. Is this right? One way to deal with them all is as benefit in kind and tax them, but just how complex should the tax system become?

Profile photo of wavechange
Member

I very much support the principle of keeping the cost of mobile usage separate from the cost of the handset. I’m also keen on paying for what I use.

Less than a year ago I investigated the cost of mobile use, with the focus on data use, because I wanted to use tethering to connect my laptop and tablet to the internet when away from home. PAYG was a non-starter, so a monthly rolling contract looked like the best option. When asking my existing mobile service provider for my PAC code so that I could transfer my number to a new phone (purchased rather than contract) I was offered a one year contract at half price – a better deal than any of the one month rolling contracts offered by the main companies and MVNCs.

I do hope that other companies follow Three in dropping their PAYG charges. As I said earlier, I am keen to pay for what I use.

Profile photo of wavechange
Member

NFH wrote:
“Not even Giffgaff, a Which best buy, comes close to this – charging a whopping 20p/MB (£200/GB) after the first 20MB each day, yet it offers a monthly bundle where a gigabyte costs just £7.50.”

How is any company allowed to charge extortionate rates? Obviously you have broken the terms of your contract but can the company justify the charge in terms of extra costs to them?

My question is prompted by a reminder from my phone and broadband provider that I have used half of my monthly broadband allowance in the past three weeks and that I will be charged £2 for each GB I use beyond my allowance. That’s not in the same league as Giffgaff but it is still a great deal more than I am paying per GB for use within my allowance.

I would like Ofcom to sort out this corporate greed.

Profile photo of DavidButler
Member

Do you know of a reliable mobile phone contract comparisom website that lists all of the current deals?