Brits still over-paying for handsets

According to a new survey by Virgin Media O2, millions of Brits are still over-paying for mobile phones.

This is because EE, Vodafone and Three continue to charge for handsets long after customers have finished paying for them. While Virgin Media O2 automatically decreases its customers’ contracts once the device is paid off.

According to the study:

  • 93% of Brits are unaware they will be charged for phones that are paid off
  • 81% of customers feel cheated and believe they should automatically be moved to a cheaper tariff when the handset cost is paid
  • 52% are not completely clear when their contract ends
  • 81% of those out of contract have been so for over three months, and 28% have been out of contract for more than a year.   

Roll of bills

Virgin Media O2 says that part of the problem is that bills do not break down what is covered, which means 55% of Brits don’t know exactly how much they pay for their handset each month. Citizens Advice calculates 58% of the average UK monthly bill is the cost of the device.   

While 75% of Brits say they’re looking to save money on their mobile phone bills, this issue disproportionately affects those on the lowest incomes. Tellingly, 44% of respondents who had been out of contract for more than 12 months earn less than £15,000 per year. 

Gareth Turpin, Chief Commercial Officer, Virgin Media O2

Gareth Turpin, Chief Commercial Officer at Virgin Media O2, said: “Bamboozled Brits don’t realise they’re being taken for a ride by opaque, confusing and outdated mobile contracts.” Turpin says Virgin Media O2 is sounding the alarm on this practice and highlights this as a key differentiator between his firm and other UK mobile operators.

Omnisperience view

Let’s put to one side the self-serving nature of this announement. Clearly this issue is something that benefits Virgin Media O2 which does not partake in the practice of overcharging customers for handsets. But given the current economic conditions it’s important to raise this issue once again.

It’s no good operators making expensive adverts saying how cool and inclusive they are, when they continue to mistreat the most vulnerable.

But this is far from a new issue. It has rumbled on for the best part of 10 years and still major UK operators are abusing their customers in this way with zero action from Ofcom.

Savvy customers have already voted with their feet. SIM-only deals – where customers buy the handset separately – are now the most popular type of mobile plan in the UK, according to CCS Insight. The firm says 40% of customers are now on SIM-only (SIMO) contracts compared to 35% on traditional contracts, with the remaining 25% on prepaid. It concludes that 80% of SIM-only customers intend to stay on the plans and 20% of prepaid customers intend to move to them.

This type of plan offers the benefits of a postpaid plan but with far more flexibility. Take GiffGaff as an example of this type of provider. They allow customers to buy a new ‘goody bag’ of airtime each month, with the customer free to buy more or less as needed. Even more impressively, they alert customers and suggest the most suitable plan for their needs.

Lessons to learn here are that the most vulnerable customers are the least able to navigate the complexity of mobile plans. Ofcom has to act to stop the ridiculous practice of charging for something already paid for. It should mandate that customers are alerted monthly that they are out of contract and that more cost-effective deals are available (and what to do about it).

More must be done to educate vulnerable customers about the benefits of SIM-only deals and how to minimise their costs. The cheapest tariff from GiffGaff, for example, is £6 for unlimited calls and texts and 2Gb of data. That also includes EU roaming.

The ability to clearly communicate different aspects of charges on bills is imperative to support all customers, but particularly for the vulnerable. Those that are out of contract should be informed of this on their bill, with suggestions as to what actions they can take. If operators’ bill presentment solutions don’t support this, then they need new systems.