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back to article Locked into fixed-term mobile contract with variable prices? Not on our watch – Ofcom

Mobile operators who try to increase the price of a mobile phone contract during its term must now allow locked-in customers to escape, says Ofcom. The regulator's new rules kick in from the end of January, and only apply to new contracts, but all operators offering fixed-term contracts will have to provide 30 days' notice and a …

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Only now?

Netherlands has this since forever and it's not even specific to mobile contracts. Of course it only applies if the new terms can be negative for the customer. Lowering the prices will not allow the customer to immediately terminate the contract.

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Anonymous Coward

It should have been nipped in the bud

The whole point of a contract is the consumer gets a fixed service for a fixed term and the supplier gets a fixed income for a fixed term. What exactly is in it for the consumer if the supplier can increase the charges at will? May as well buy the handset and go 30-day SIM only rolling contracts.

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Good for OFCOM

Fixed term fixed price contracts should make the industry more keen on pricing and I could never understand the context like housing where its stated every person had a right to own one.....total BS.

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Anonymous Coward

Re: Good for OFCOM

"I could never understand the context like housing where its stated every person had a right to own one.....total BS."

Firstly, WTF, where did housing come into an article about fixed term mobile contracts?

Secondly, why would anyone NOT have the right to buy something?

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Maybe if they stopped the mobile phone subsidy all together we would have less landfill...

I would much rather have to buy my phone, then maybe the market would be a bit more competitive, as right now phone prices are ridiculous.

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I liked O2's new(ish) contract which splits the cost of the phone from the airtime making it blatantly clear to the consumer what they are paying for.

Nothing wrong with supplying expensive equipment through a credit agreement, as long as its fair.

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"I would much rather have to buy my phone, then maybe the market would be a bit more competitive, as right now phone prices are ridiculous."

Cheaper than they've ever been, on a like for like basis. I suspect you're thinking of the range topping handsets from any company you care to name. But the manufacturing costs are what they are, as the BoM data will tell you, and the margins charged then reflect the norms for the market segment (ie i5S and SGS4 have big profit margins) and distribution chains (retailers won't stock and sell you a £400 phone for a 5% gross margin). So I very much doubt that a fully purchased handset market would offer materially different prices.

The Nexus devices are a bit unusual, in that they are largely partly "profit free" models sold at not much above manufacturing, distribution and warranty costs, but sold that way because they support Google's agenda, and that's the only way I can see that will reduce handset costs - where somebody forgoes normal commercial margins in order to make money from you a different way.

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Anonymous Coward

Landfill?

"Maybe if they stopped the mobile phone subsidy all together we would have less landfill..."

I suspect more landfill, as punters go for cheaper phones.

Other than mid contract price hikes, which should not be allowed, I mostly like the market as it is. I have the flexibility to pick and choose, deciding how much I pay up front, and that's fine by me (I'd usually rather buy the phone outright anyway, unless there is a clear subsidy, which is getting rarer all the time). As long as I get to determine the total cost of ownership, I'm happy.

In fact, if the Ofcom ruling ushers in fixed priced contracts, perhaps the operators will allow a simple, annual or be-annual renewal (i.e. just let the punter pay the lot, up front if they wish). What would be nice is if the operators could be more transparent about what subsidy they're offering on a given deal, if any!

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Re: Landfill?

I agree with the original poster. At the moment, if you buy a subsidised handset on 1 year contract, at the end of the year, your monthly payment stays the same. So you have 2 options: Carry on paying the same with your 1 year old handset, or take out a new contract, for the same money and have a new handset.

Result --> 1 year old handset goes in landfill, or if the environment is lucky, it gets sold-on.

A far better solution is people buy their phones (sure allow them a credit agreement if you want), and then have all airtime contracts independant from phone credit agreements.

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Re: Landfill?

At the moment, if you buy a subsidised handset on 1 year contract, at the end of the year, your monthly payment stays the same. So you have 2 options: Carry on paying the same with your 1 year old handset, or take out a new contract, for the same money and have a new handset.

3. Switch to a SIM-only contract for much less money and keep your old phone.

There's a bit more to it than that, though, as a contract will often include an element of warranty and insurance for the phone for the initial contract period -- guaranteed replacement within 24 hours can be useful -- and some users will upgrade their phones as soon as the old contract exipres to keep that.

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Re: Landfill?

There's also the fact that the subsidized plans frequently offer value-added services, such as visual voicemail and Wi-Fi calling, that none of the prepaid carriers can offer (at least where I see it in the US. None of the unsubsidized GSM carriers I know support call forwarding that allows a third-party voicemail to work; some won't even support shortcodes).

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Anonymous Coward

Re: Landfill?

1 year contracts? Hen's teeth. SIM only contracts cheaper than an 18/24 month contract? Stuff of legend.

There's a reason we buy into two year contracts, and it isn't the convenience of being locked to an operator for two years.

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Why in three months time why not from the 1st Nov?

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Megaphone

OMG

Did I read this right. Ofcom acting in the interests of the consumer for once? I may drop dead of shock.

Now all they have to do is pass the operators details to the monopoly commision the minute each operator adds £1.50 to their tariffs "to cover the risk" in lockstep with each other.

We all know that "cover the risk" is a euphemism for "do some extra gouging" as for a good 10-15 years mid-contract price rises were always an option that they declined to use until one of them got greedy. Last time I checked one of an operators key metrics was customer churn - and Im willing to bet that none of them did a cost benefit analysis of the extra short term revenue versus the increased long term churn - probably since none of the idiot PHB's at the telco's intend to stay in the same role for more than the duration of an average mobile contract.

/rant

Rational part of me does feel obliged to point out that the longer relationship you have with most corporate entities the more likely they are to do something you percieve shitty - and the average joe buying a mobile contract probably couldnt even spell caveat emptor let alone know what it means.

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Re: OMG

If they could ask people to pay £1.50 extra each a month now, they would - or £2, £5, whatever the market could bear.

Luckily with 4 major National networks and lots of sub networks there is plenty of competition and they may well have to suck this price up. It was strange how when the 3% extra price was announced for existing customer and their bill went up to £37.54 per month or whatever, new customers could still get the nice (rounded number) £36 per month deal.

If ofcomm had been suckered into accepting the "insurance policy" option then the networks could still advertise the cheap price, have the "insurance against increases" as an optional extra and the network would win on all fronts (and the consumer would lose out).

Expect more "hidden" costs and optional extras (like the current 1p per text message delivery notification that was always once free, pay a premium price for freephone and 0845 calls, etc) rather than a baseline price increase.

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Anonymous Coward

Has always been this way, no need for OfCom

A contract requires both parties to agree terms.

If one party varies those terms, the other party must agree or the contract is void.

This is basic law.

Why the hell does OfCom need to do anything?

Oh wait, PR stunt for our dear leaders. Make them look good so we don't worry about the lights going out, the total lack of banking regulation or the massive tax evasions they allow happen.

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Re: Has always been this way, no need for OfCom

A contract requires both parties to agree terms.

If one party varies those terms, the other party must agree or the contract is void.

This is basic law.

Yes - and if one of the contractual terms to which one agrees is that the cost increases annually in line with RPI, or at a fixed %age as defined in the contract, then as long as that is the only rise that is enforced then the contract is perfectly legal and in fact still stands.

Obviously, there's an argument over whether the normal extra £1.20 a month these rises normally comprise is in fact an accurate RPI increase or not, especially when the infrastructure is already paid for; it costs telcos *ABSOLUTELY NOTHING* for you to make a call or send a text; and that the only way £1.20 pcm is a 3% RPI is if your monthly bill is over £40 all in, which includes them taking an increase in the loan repayments for the hardware in the first place.

No-one is denying that telcos are taking the piss - but saying that payments increasing annually with RPI as a contractual term voids a contract is incorrect.

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Re: Has always been this way, no need for OfCom

"A contract requires both parties to agree terms."

While strictly true, try negotiating your own terms. You ether take what they offer, or you don't get the service. So in reality one side has no option but to agree to whatever terms the networks offer.

That's a cartel, and that's why the regulator needs to take action.

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Re: Has always been this way, no need for OfCom

Errrm, quite clearly because if all companies do this, there is no alternative to agreeing to the contract. People would rather agree than not have a phone (which for some people is essential for their business or whatever else they are up to with it), this does not however mean that they wanted to agree to these terms or that they are just, it just means its the worse of two evils.

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Re: Has always been this way, no need for OfCom

...or best of two evils even! haha

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Anonymous Coward

Re: Has always been this way, no need for OfCom

"because if all companies do this, there is no alternative to agreeing to the contract"

Which would only happen if all companies agree, which makes them a cartel, which is illegal.

Once again, this is covered by current legislation.

Once again, OfCom are proven worthless.

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Re: Has always been this way, no need for OfCom

Actually, you are completely wrong, all companies doing it is not a cartel, only if they get together and agree to all do it is it a cartel, and it has to be proven that they did get together and agree for it to be illegal. The fact that all companies have independently decided it is a good idea, does not prove it is a cartel, the same way all supermarkets are not members of a cartel because they have all decided to sell food as a business idea.

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Re: Has always been this way, no need for OfCom

That free-market-weenie's wet dream is dead, thankfully, and has been for a long time. The idea of unfair contracts isn't a new one, this is just updating it to cover an instance that didn't exist when it was first devised.

http://en.wikipedia.org/wiki/Unfair_terms_in_English_contract_law

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Anonymous Coward

Re: Has always been this way, no need for OfCom

"A contract requires both parties to agree terms."

Under English law it requires quite a lot more than simple agreement, especially when it comes to boilerplate "contracts" signed as a mere formality in consumer retail situations. These are called "standard terms", because one of the parties has no power or recourse to negotiate. English law, in its ever-so-reasonable way, requires the party acting as what amounts to being a retailer to act like a retailer. Yes, they can issue a contract, but they are required to act as would be reasonably expected.

If someone advertises a £30 a month contract for 24 months, any reasonable person would expect to pay £30 a month for 24 months.

Yes, the carriers and other free-market nutters have a point that this is mainly a problem of advertising rather than actual actual, but one simple fact gets in the way of that argument. When I signed my contract a year ago, i was paying £34 a month. Now i'm paying about 6% more (give or take). If I went and got a second phone of similar value on the same rates, i'd pay exactly £34. Their behaviour is classic bait-and-switch and should be treated as such.

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Go

"But it's not really a loss; it's the amount one pays to transfer the risk to the operator. "

It seems to me that EE have just rather eloquently dismissed the whole concept of insurance for smaller risks. I'm pleased to see they have come around to my way of thinking, finally.

GJC

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Customer Retention

Is anyone else old enough to remember when companies used to reward loyal customers? You know, the longer you stayed with them the better deal you got? Insurance premiums on cars used to go down the longer you stayed with the insurer (assuming you didn't actually claim anything) for example. Now you have to switch every year to get a reasonable deal, yet they still complain about churn.

I've worked with a whole bunch of companies in the consumer sector, they all complain about churn, but then bring out policies that have customers fleeing in droves - very, very odd/

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Re: Customer Retention

And yet in the first week of any management training you'll be told that you need to spend (roughly) 10 times as much to get a new customer than to retain an existing one. The inmates are truly running the asylum.

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Re: Customer Retention

" Insurance premiums on cars used to go down the longer you stayed with the insurer"

In actuarial terms, the "no claims bonus" was always flawed. The numbers simply don't support the logically sound idea that not claiming shows that you are a lower risk driver, and therefore less likely to make a claim in the next year. But a few companies offering it meant that everybody else had to, and to make the numbers balance they have to raise premiums for loyal customers. Elsewhere it's most unusual to even try and pretend that year on year prices will reduce.

There's introductory discounts on all manner of services - mobiles, fixed line, ISPs, insurance, gas, electricity, boiler servicing, film rental, music streaming etc, yet at the same time there's costs of customer acquisition and on-boarding that make year one customers unprofitable, and sometimes for several subsequent years. Somebody has to pay for that, because a company can't lose money on new customers, and then make it cheaper for them in future years. To eliminate the problem, you'd need to mandate that new customers must by law not be offered introductory discounts, and must pay the costs of customer acquisition. Doesn't take much thought to see how badly that would work out for consumers.

So by switching on the basis of price, you contribute to the problem that you are complaining about. Loyalty is rarely rewarded by companies - more often than not they want your nice regular payments, but regard your loyalty as merely an opportunity to cross-sell yet more big margin services that you could get elsehere for less. If you don't care about price (as some people don't) then don't switch. If you care about price, accept that you have to switch, and just be pleased that regulators have made the process relatively painless?

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Customer retention

I think many company's gave up trying to please old customers due to cost constraints and ended up just trawling in as much new trade as possible thus off setting the loss.

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FAIL

The operators also argued that fixed prices would lead to higher telecommunication costs - which is probably true, as operators will have to fund the risk they're taking in fixing the price.

This is very poor economics. Firstly, why was the RPI chosen as the bench? What is the relation between the RPI and the costs incurred by the operators? Secondly, by passing on the notional additional costs to consumers the operators are under no pressure to minimise them. This is reversed when they cannot simply pass on the costs: yes, they can adjust the bill to include the cost of hedging but market pressure should prevent excessive hedging and even it out over time. Exceptions, of course, for statutorily imposed charges such as VAT, but they should be covered by properly written contracts.

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"What is the relation between the RPI and the costs incurred by the operators? "

Having previously lived in a world of differential price indices, I'd guess that RPI is not a bad index for the range of costs that network operators cover - certainly better than producer, consumer, construction price indices, or some yet more complex OFCOM-owned measure. The real problem that I think you're alluding to is that it is applied to the total bill. Not only (as others have commented) do the infrastructure costs not go up with inflation, but neither does the cost of the handset - a few fag packet calculations suggest that on a typical bill only one third of it would be variable opex upon which you could argue that an inflationary adjustment was valid.

However, the operators need to recover the costs of new customer incentives and acquisition, and bogus "inflation" rises was one way of doing this that was relatively painless.

I wonder what the unintended consequences of this move will be?

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It needs to watch out for sneaky changes though. When I signed up for my contract I got Vodafone Passport which gave you the same deal as you had in the UK when roaming. They then changed the T&C for Passport and introduced Euro Traveler which cost more to give you what Passport used to give but no longer did so.

Of course, as ever, we have been here before. A long time ago (15 years?) Orange had to let a load of customers out of their contracts when they changed pricing under them. It seems that the contracts have got wise to them.

And as for the end of subsidies: It was promised when Virgin launched, and I remember sitting down to lunch with the heads of Nokia UK, Motorola Europe and Ericsson UK in the late 1990s when we toasted the end of the subsidy model.

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I dumped O2 precisely because of this problem, fixing for 2 years was not really a fix, it was a con because they could just raise prices anyway. I now refuse to sign any contract longer than 12 months, and I have actually found its cheaper to avoid the usual contracts and buy the phone separately to the plan itself. I bought my latest phone SIM free from Amazon and signed up to a 30 day SIM-only deal. It saved me around £100 over the life of the contract they tried to offer me. I now have the flexibility to both move providers and buy another phone if I so choose.

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Paris Hilton

For pity's sake, don't buy a phone on HP

Well done to Ofcom for this action, but IMPO entering into a two year phone contract is a pretty silly thing to do anyway - anyone who falls for the free-smartphone-on-the-fifty-quid-a-month-deal shouldn't be allowed out on their own.

I've use a thirty day rolling deal for a while now and every six months or so the service provider phones me up and tries to trick me into entering into a longer term contract. I don't mind these nuisance calls because they correlate with the deals on offer being rejigged, so I know it's time to check their website then call them back and ask to be moved to the new better deal.

Of course I'll look pretty silly when we enter a hyperinflation phase.

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This is great news

A fixed term contract should also be fixed cost (even for inflation). Mobile phone contracts are normally 12 to 24 months so the service providers should be able to factor in the inflation before the contract starts. If this means that they offer shorter contracts then so be it, I always hated the trend of contracts longer than 12 months anyway. Having said that, 30 day rolling contracts is now the best way. It offers consumer more freedom and better for consumers on the whole. It forces service providers to keep their customers by providing good customer service and mobile phone service rather than relying on tying in the customers to a stupidly long period. Most of the time 30 day contracts + SIM free phone will work out cheaper than a phone on a stupidly long contract (when looking at the same duration).

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Now if only they could make it append to all fixed term contracts

As BT have again decided to raise their charges i.e. line rental "go up by just 3.5 per cent – from £15.45 to £15.99 a month" and £!.75/month for the 1571 service

But you can sign up and get BT Privacy with Caller Display free for a year (a new 12-month line rental contract applies).

Right that old cherry is worn a bit thin

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Anonymous Coward

"But it's not really a loss; it's the amount one pays to transfer the risk to the operator. One pays a little more to avoid taking a punt on next year's rate of inflation."

My first mobile phone, way back nearly 20 years ago, never had price increases during the term.

But in 2013, where greed is just rampant, business finds a way of screwing every penny from any source, ethical or not!

I don't use contracts any more for handset/price plan. Buy the phone and get a 30 day rolling contract. Cheaper, easier, takes the control away from the operators.

If you get stung, switch away! Don't continue to support such operator then winge on!

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I've just had notice of a price increase from Vodafone

Which I have no choice about because I'm still in contract.

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