Despite EE and Three recently joining O2 and Vodafone in switching to split contracts, where handset and airtime costs are detailed separately and inflation-linked price rises are only applied to airtime, millions of legacy customers are still on bundled contracts, where a single fee is charged, seemingly to cover the cost of both elements.
In Which?’s view this means inflation-based price increases are effectively increasing the price of the phone for these customers – yet another reason why unpredictable annual hikes are unfair on consumers.
Bundled contracts lack transparency
A key issue with legacy bundled contracts is a lack of transparency. The customer cannot tell how much they are paying for the device, and how much for the airtime.
Because of the way terms and conditions for some bundled contracts are written, providers are able to argue that the handset is provided free of charge and that repayment is purely for the use of data, calls, texts and network benefits. However, given that the marketing of the contracts at the time clearly showed it was for a phone, the fact that the price varied depending on which model was chosen and that a Sim-only contract paying just for airtime would be significantly cheaper - we think this is clearly not the case in practice.
For example, an EE bundled phone contract in September 2022 cost £63 a month for an iPhone 14 with 125GB of data, and £81 per month for the same deal with an iPhone 14 Pro Max. Three charged £61 per month for an iPhone 14 with 100GB of data, and £13 more for the same data with a 14 Pro Max. Therefore, part of the price is, clearly in our view, designed to recover the value of the handset provided.
How much extra could bundled contracts cost?
£193 extra
Costs are based on a 24-month contract factoring in 14.4% inflation (10.5% CPI plus 3.9%) in 2023 and (projected) 8.4% (4.5% CPI plus 3.9%) in 2024, unless indicated. We've included how much extra we believe would effectively be charged for the handset.
EE
£214.74 extra for their phone.£103.36 extra for their phone.Three
£48.25 extra for their phone.*£170.25 extra*Three applied a flat 4.5% inflation increase that applied to the duration of the contract. An increase of 14.4% in April 2023 applied to all new and upgrading customers who had taken out a contract from 1 November 2022 and was applied in their April 2023 bill.Am I affected by inflation charges on a handset?
This issue affects EE customers who entered a contract before it began offering split contracts to all new customers in August this year. It will also impact Three customers who joined before 30 January 2023, when it introduced split contracts for new customers. A small number of Vodafone customers who joined before June 2021 may also be impacted.
It is important to note that customers who are no longer inside the initial contract term are free to switch or renegotiate, in order to avoid these charges.
Whether or not these providers have realised the error of their ways will be cold comfort to millions who are still stuck in legacy deals, where providers apply ‘inflation-plus’ price rises to the whole contract, meaning customers effectively pay more for both their handset and airtime.
EE and Three confirmed to us that legacy customers are not automatically being given the option to move to split contracts as that would involve a unilateral change to the contract, so these customers will be left to pay the unfair inflation-linked increases on the handset.
Customers will have to take action themselves at the end of a contract. Some may be able to utilise an upgrade clause, but in the meantime many are trapped into paying these unfair charges, or potentially face hefty exit fees.
Bundled contract inflation is unjustifiable
Bundled contracts exacerbated the effect of inflation and the unfairness of mid-contract price rises, potentially increasing the price of a handset that has already been provided to a customer.
So while it’s good that the big four providers have finally all moved to more transparent, split contracts, that will be of little reassurance to those who have overpaid in the past, or to the millions of existing legacy customers who will be forced to pay even more next April.
For these customers, inflation-linked price rises on contracts that clearly seem to factor the value of a phone is a completely unjustifiable expense, and providers must consider how they can do right by customers who have already been affected. It’s yet another reason providers should cancel the mid-contract price rises planned for 2024 and Ofcom should ban unpredictable price rises altogether.
There is also a further risk of overpayment for these customers, as the cost of the device is not necessarily automatically removed when their contract ends, so some customers may continue to pay for a phone they’ve fully paid off.
We believe it is unfair and, in some cases, potentially unlawful for consumers to be signed up to deals that don't give them certainty about how much they can expect to pay, and exactly what they are paying for, over the course of their contract. This is particularly important as exit fees can be punitive.
That’s why we’ve launched our campaign The Right to Connect. We're calling for clearer and fairer pricing for telecoms customers and an end to unpredictable mid-contract price hikes.
Rocio Concha, Which? Director of Policy and Advocacy, said:"We believe millions of legacy EE and Three customers on bundled contracts may be being ripped off and effectively unfairly charged extra for their handset due to unpredictable mid-contract price hikes.
"Where these price hikes are applied to the handset as well as the airtime portion of the contract, consumers are being charged a completely unjustifiable extra expense and providers must consider how they can do right by those affected.”
Read more about our campaign : ensuring the price you see is the price you pay. Help us put an end to unpredictable broadband and mobile price hikes: .How the providers responded
EEVodafoneAny customers on legacy bundled contracts will be out of contract and therefore free to leave at any time. Those who stay on bundled contracts are contacted repeatedly when their plan comes to an end, and after 3 months – if they haven’t moved onto a new contract already – we automatically apply a monthly £5 discount.’
ThreeOur research
The estimate of CPI at 4.5% in January 2024 is a mid-estimate based on the Bank of England inflation quarterly forecasts in the August MPC Report (4.9% in quarter 4 2023 and 4.3% in quarter 1 2024).
Phone launch prices:
source https://www.which.co.uk/news/article/millions-of-ee-and-three-customers-ripped-off-on-contract-inflation-aVnLa1m0XtOm