The Big Four mobile firms - EE, O2, Three and Vodafone - raise prices every April using the Consumer Price Index (CPI) or Retail Price Index (RPI) rate of inflation plus 3.9 percent.
EE, Three and Vodafone use CPI - leading to price increases of over 14% in 2023 - while O2 uses the higher RPI measure, meaning its customers will face hikes of more than 17% this year. The price rises are applied mid-contract, so customers have to either accept these high increases or pay early termination fees to get out of their contract.
Shockingly, these inflationary increases also mean some providers will arguably overcharge customers for handsets that are included as part of a bundled contract, despite ongoing inflation having no impact on the cost of the handset to the provider.
Fortunately, some networks outside the Big Four offer inflation-avoiding alternatives, such as Giffgaff which is leading the way by freezing its prices until at least the end of 2023.
O2 customers facing the highest increasesJanuary’s Retail Price Index (RPI) rate of inflation was published last week - the current rate is 13.4%, remaining near the highest rate recorded since the 1980s. O2 adds 3.9% to the RPI rate, meaning their customers are facing a 17.3% increase to their monthly payments. This is higher than the 14.4% (CPI plus 3.9%) increase faced by customers of the three other major networks.
The only positive difference is that O2 offers split contracts, where the cost of the device and air time is separated. O2 then only applies the inflation-based price increase to the airtime part of the contract.
Our pricing analysis found that the average O2 Sim-only customer will see their bill increase by £42.72 per year if affected by the price rise. If they instead chose to exit their contract 12 months early, this would cost £237.08.
O2 is now one of only two major mobile providers that still uses RPI to work out its price increases (the other - Virgin Mobile - is also owned by O2. ID Mobile swapped to using CPI in November 2022 though some legacy customers will still be subject to RPI-based price rises).
The Office for National Statistics has said that RPI is not a good way to measure inflation as it's likely to overstate the inflation rate.
EE, Three and Vodafone customers all hit by hikes
EE, Three and Vodafone all use the December CPI rate, which was 10.5%, plus 3.9%, to work out their price increases. This means many of their customers are facing 14.4% increases.
The scheduled price hikes will hit customers with bundled contracts hardest - here the customer pays a single amount for both the handset and airtime each month. Based on figures from our latest mobile survey, the average customer would see the following annual increases if affected by the price rise:
EE ThreeExiting the contract early doesn't provide a better option, as leaving a year early would cost the average customer even more:
EE ThreeSome legacy Three contracts will only have the 4.5% flat rate increase that the provider previously used, but eventually most of its customers and contracts will end up being hit by CPI-based increases.
For O2 and most Vodafone contracts, only the airtime part of a contract is subject to inflation - so the level of mid-contract price hikes and exit fees will vary according to the individual contract.
Sim-only deals are not immune to price rises
Long term bundled contracts might suffer the worst inflation-based increases, but Sim-only deals from the Big Four can also rise dramatically in cost, without an easy way for customers to avoid this.
Our pricing analysis calculated how much an average SIM-only customer with a contract longer than 30 days, with EE, O2, Three and Vodafone could see their payments rise in 2023. The average increase per year is:
EEO2 Vodafone ThreeIf a Sim-only customer wanted to exit their contract instead, they would face the following early termination fees to leave a year early:
EE Vodafone O2 Three
Extra charges on handsets in bundled contracts
For many EE and Three bundled customers, plus some legacy Vodafone customers, inflation-based price increases will also mean paying more for their handset, despite these costing no more to the provider. This is because they do not split the contract price into separate charges for the device and the airtime.
For example, we estimated an EE customer who took out a 24-month contract for an iPhone 14 Pro Max with unlimited data would pay an additional £105 over the next year just for the handset.
A Three customer with the same contract would pay an additional £86 for the handset over the next year. Prices for both providers will rise again the next year, meaning that customers will pay even more just for their handset. If they have a 36-month contract, an increasingly common offering, they could face an additional year of price rises.
Other providers offer split contracts (rather than bundles) that separate out which part of the contract is for the handset and which part is for the airtime. In this case, inflationary increases can be more cleanly applied only to the airtime portion of the bundle. O2 offers split contracts and only increases the price of the airtime part of the contract, not the device.
However, while split contracts offer more transparency, customers should still weigh up the fees for airtime and handset repayments, and shop around to ensure they’re getting a good deal.
If you are stuck in a bundled contract, when it ends, use our guide on to move to a better deal elsewhere.
Which providers don't increase prices?
It’s now unusual for mobile providers to commit to not increasing their prices each year. For years, Tesco Mobile guaranteed prices won't rise mid-contract as part of its 'Tariff Promise', but it has recently announced it will start applying inflation-based price increases to some contracts starting this spring.
Currently, Sky Mobile does not raise prices mid-contract for their mobile contract customers. However, Sky does not guarantee their prices will stay the same, stating that prices may go up during a contract.
On a rolling monthly contract with a provider like Giffgaff, Voxi or Smarty, however, these types of typical inflation-based rises won't apply, and customers are able to switch the next month without penalty.
Which? calls for change in the telecoms market
A Which? campaign is calling on essential businesses, including telecoms providers, to help consumers grappling with the impact of the cost of living crisis. Like supermarkets and energy companies, telecoms providers must pull together to create a fairer market, and help those struggling with the financial and emotional impact of rising prices.
providers to reconsider any price rises they impose, and allow customers to leave their contract without penalty if prices are hiked mid-contract - regardless of whether or not these increases can be said to be ‘transparent’. We also want 2023 mid-contract price rises to be cancelled for financially vulnerable consumers. This should apply to those consumers known to providers and all those who are eligible for social tariffs, but have not yet taken one. Providers should work with government and Ofcom to identify these customers using all data available to them.If you're out of contract, keep in mind that you don't have to accept any price rise – you're free to shop around to find a better deal. In many cases you'll find that it will save you money, and you may get a better service. But check the terms and conditions of any new contract carefully so you're aware of your new provider's policy on price rises.Rocio Concha, Which? Director of Policy and Advocacy, said:'It’s hugely concerning that many mobile customers could find themselves trapped in a Catch-22 situation where they either have to accept exorbitant – and difficult to justify – mid-contract price hikes this Spring or pay costly exit fees to leave their contract early and find a better deal.'
'With many households struggling to make ends meet, it is completely unfair that people are trapped in this situation. Which? is calling on providers to act quickly and reconsider any price rises. Firms should cancel 2023 hikes for financially vulnerable consumers and allow all customers to leave without penalty if they face mid-contract price rises.'
How the providers responded
EEO2O2 also said most of its contracts are 12 months or less, so it was unlikely the majority of its customers would face a 12 month exit fee.
ThreeVodafoneOur research
Bundle price rise calculations are based on the average amounts paid by customers in a January 2023 survey of 3,400 mobile customers for phone contracts. Data includes a nationally representative sample plus a provider boost approach for brands with low sample sizes. Sim-only prices based on an average Sim-only contract for any amount of data where the contract is longer than 30 days, with the data collected during our pricing analysis.
To calculate the exit fees payable for mobile consumers, we took a hypothetical consumer who has 12 months remaining on their contract at the point where prices are set to rise. This makes the figures for annual price increases and exit fees comparable. Our calculations for EE and Three bundled contracts are based around exit fees faced by a customer paying the average amount as per our survey. Our calculations for EE, Three, O2 and Vodafone Sim-only are based on data collected during our pricing analysis. For all providers and types of contract, we followed the example calculation for early termination charges displayed on their website.
To calculate the impact of inflation-based price rises on the handset element of bundled contracts, we compared contracts against an equivalent Sim-only plan. We then subtracted the equivalent cost of the airtime from the total monthly cost of the contract to estimate the element of the contract that goes towards handset repayments.
Tech tips you can trust –undefinedsource https://www.which.co.uk/news/article/mobile-customers-facing-price-hikes-trapped-by-contracts-aYTVe9B4hJgv