Reviewing Bundled Handsets

Consumer

19 Medi 2018

Today, most of us sign up to a mobile phone contract that includes the cost of the handset too. This model - high value hardware bundled with a service contract - is almost unique across all consumer markets. Bundling can offer benefits, such as allowing consumers to spread the cost over time, but it also has two major drawbacks.

The first problem - the lack of price transparency - arises before consumers sign a contract. By blurring the cost of the phone and data allowances, handset-inclusive contracts make it hard to know what the best deal is. Our research shows that in three quarters (73%) of cases it is cheaper to buy a handset and data separately. But most (55%) consumers who have bought their phone as part of a bundled contract believe that their route is usually cheaper. The lack of transparency means that millions of consumers are overpaying.

The second problem - the mobile handset loyalty penalty - occurs at the end of the minimum contract period. Consumers who do nothing continue to pay the same original price, despite no longer benefitting from a new handset. 1 in 3 bundled contract consumers go beyond their minimum contract period, equivalent to 4 million people. On average they spend 6 months beyond their minimum contract and face a loyalty penalty of £22 a month. This means that consumers overpaid by £490 million on their last mobile phone contracts.

Ofcom has identified the detriment in this sector and is currently consulting on proposals to mandate providers to notify all consumers before the end of their minimum contract period. As part of this process:

Ofcom should strengthen its current proposals by:

Requiring providers to send more than 1 notification.
Collecting and publishing data on the number of consumers beyond the minimum contract period by each provider.

But notifications and information alone will not be enough to end these consumer problems. Since we reported on the handset loyalty penalty in October 2017, the 3 major providers still relying on bundled contracts have not shown signs of fundamentally addressing the underlying problems. So:

EE, Three and Vodafone must stop charging for handsets at the end of the minimum contract period and should provide clearer pricing information . The split contract model that is already used by other providers in the market can achieve both of these objectives.
DCMS has been clear that this practice must stop. The government must intervene if industry cannot develop its own solutions .