15th April 2015
Mobile phone customers collectively waste £355 million a year on handsets they have already paid off, new research has shown.
A campaign by Which? as found that nearly half of people (46%) who came to the end of their mobile contract did not switch immediately, collectively overpaying by a total of £355 million per year – an average of an extra £92 each towards handsets they had already paid for.
The Unlock Better Mobile Deals campaign shows that most contracts combine the cost of the tariff and the handset over the minimum term, usually 24 months. But this is not always split out, so people don’t know how much each element costs or when they have finished paying for their phone. Six in 10 (60%) people we surveyed told us that having a provider who separates its bill so you can clearly see the tariff and handset costs was important to them when switching.
O2, Virgin Media, Tesco Mobile and Utility Warehouse have tariffs where the handset and airtime costs are separate while giffgaff have never bundled the handset price into the tariff. Customers on Vodafone, EE and Three still continue to be charged one bundled price.
For example, a contract with O2 Refresh for an iPhone 6 costs £49 a month for 5GB of data and unlimited minutes and texts. Of this, O2 is clear that the handset part of the bill is £25, so when the contract is over you only pay £24 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 and have finished paying off the cost of the handset.
Nearly everyone we surveyed (97%) said that price was important when looking to switch and providers alerting customers that their contract is coming to an end also ranked highly (74%).
Which? executive director Richard Lloyd, says: “Consumers are being misled and as a result are collectively paying millions of pounds each year for a phone they have paid off. All mobile phone operators should separate out the cost of the handset so people don’t continue to pay after the contract comes to an end. Mobile providers need to play fair and ensure their customers are not paying over the odds.”
Which? also calls for mobile companies to ensure consumers are getting a better deal by unlocking all handsets automatically for free. It wants providers to improve their customer notification practices, giving people at least a month’s notice that their contract is coming to an end and providing information on all the best deals that match their needs.
Ernest Doku, telecoms expert at uSwitch.com, says: “Staying with your mobile provider at the end of your contract costs loyal customers millions of pounds a year. It’s in a bill payer’s financial interest to be fickle – because loyalty doesn’t always pay.
“People can take control and potentially save money by making a note of when their contract ends and searching for a deal that suits their usage. That doesn’t necessarily mean switching away from a network, but customers may find the best deals on the market are with a different supplier.
One way to avoid paying over the odds for a handset is to go for a two-part tariff with separate handset and airtime, Doku explains. However, the airtime cost after the phone has been paid off can actually be higher than opting for a SIM-only deal with an existing phone.
For example, on O2 Refresh, once the handset has been paid off after two years, customers will pay £24 per month for unlimited minutes, texts and 5GB of data. But they could save £6 per month for 1,000 UK minutes, unlimited texts and 5GB of data with giffgaff SIM-only or save £1.50 a month for 5,000 minutes, 5,000 texts and 6GB of data with Tesco Mobile, also on SIM-only.
Doku adds: “If you’re happy with your handset and not in need of a new phone, moving to a SIM-only tariff at the end of the minimum term is the best bet. It’s the easiest way to avoid paying off a phone at the end of a contract that’s already been paid for.”