Mobile Contracts: The powers to increase the price mid-term
With more than 20 million people in the UK signed up to pay-monthly mobile phone contracts – price increases by all five of the major mobile phone companies within the last 18 months earned them an estimated 90 million pounds. But these price increases affected customers who had already signed the dotted line on fixed term contracts lasting up to 24 months – leaving them with no option but to accept the price increase mid contract, or face the contract cancellation penalties.
Published 1 May 2013:
Clauses in the small print of all their contracts state that the company reserves the right to change the price as long as the increase is in line with a set measure of inflation - and providing the company gives the consumer a decent amount of notice. But are companies informing consumers of these powers to increase the price?
A report by Watchdog in October 2012 revealed that they were not. We visited the major mobile stores, posing as customers seeking fixed contract deals.
Back then Vodafone and Three had already raised their fixed tariffs and haven’t put them up since. However at that time they failed to notify us that they had the powers to increase if they wanted to.
O2 hadn’t increased their prices at that time and informed our mystery shoppers that the price of a fixed term contract would stay the same.
But we have learnt otherwise. Just 10 weeks after our report the company raised the prices of its pay monthly contracts by 3.2%.
And only last month Orange joined the bandwagon of mobile companies hiking up the prices of their fixed term contracts, despite informing us in our mystery shop last year that they wouldn’t. This came as a surprise to O2 customer Katherine Pike.
Katherine bought her daughter an Orange pay monthly mobile phone in 2012. In March 2013 she received a letter informing her that due to inflation, the contract price would be going up by 99 pence per month. Katherine was shocked and disappointed because she had assumed that her contract price was fixed for the full 24 months. She claims that although she spent nearly 3 hours in the shop discussing the contract, at no point was she told that the price could go up.
Well it sounds like the mobile companies are back to their old tricks.
On hearing announcements that EE – which owns both T-Mobile and Orange - will once again be increasing their pay monthly contracts for T-Mobile, we decided to find out if they are still misinforming consumers about the clauses in their contracts.
In all five stores that we visited, we were given assurances that the fixed price would not change.
T-Mobile prices had already increased last year and in a matter of weeks they are set to increase again. But the staff in the stores failed to inform us yet again of this possible increase.
On average over the past 18 months Vodafone pay-monthly contracts increased by 59p per month, O2 by 77p per month, Three by 86p per month, T-Mobile by 89p per month and Orange by £1.04 per month. These prices may seem small, but considering they earn the mobile company millions, consumers need to be fully informed when signing the dotted line.
Contract law expert Katherine Reece-Thomas explains,
'…assuming nothing is mentioned before the contract is signed, by stating that the price will not change they are telling an untruth about the basis upon which the consumer is being asked to sign up to an expensive contract. They are misrepresenting the content of that contract and by doing so inducing the person to sign up. If that were proved to be the case, then they are probably committing an unfair trading practice. The consequences of a finding that there’s misrepresentation would be that the consumer can unravel the contract and at minimum should be able to leave the contract without having to pay any cancellation fee.'
Our store staff receive extensive training and should always be aware of pricing details for our contract plans and ensure that information is communicated clearly to customers. We are very disappointed by these findings and are investigating the stores involved.
We work hard to keep prices down for our customers but we’re also not immune to inflationary pressures so ensure any increases are as small as possible.
In the time that has passed between Watchdog first covering mid-contract price rises in October 2012 and today, much has changed – particularly with the announcement of the Ofcom consultation into this.
We are actively participating in this consultation, to ensure that customers are protected against unexpected increases in their monthly phone bill. At the same time we’re continuing to improve the information that is given to customers when they join us or upgrade.
We have not hidden the fact that prices could change during the term of a contract, but we understand that across our industry, mobile phone companies need to ensure that customers receive clear information.
We apologise that your researcher was informed that prices would remain the same. Since we announced our price change, our sales advisors now point out to customers that prices may go up as well as down when they sign a new contract.
Mid-term contract price rises are becoming a threat to transparent pricing and competition. Consumers understandably want clarity to enable an informed choice when making a contract commitment.
Ofcom has the opportunity to level the playing field and ensure that all operators price their recurring monthly charges in an open way. We understand that while we and other operators have the means to vary prices in line with inflation, it can make choosing a deal confusing.
As a business we are able to anticipate some future costs, such as standard calls, texts and data. Other charges, for non-standard services such as premium rate, non-geographic numbers and roaming charges can vary significantly. That is why they are generally sold out of bundle.
Published 1 May 2013