Analysis: Is the smartphone swindle real?

Last month, Virgin Media O2 (VMO2) stepped up a campaign it launched [1] earlier this year dubbed the smartphone swindle, introducing a digital calculator [2] for consumers to check if they might be overpaying for devices purchased in a bundled contract.

In a rather alarming report published in May, VMO2 claimed millions of customers who signed up to bundled plans from EE, 3 UK and Vodafone UK continued to be charged for smartphones they had already finished paying for.

VMO2 said at the time consumers “felt cheated” by their contracts, arguing its rivals did not go far enough to notify customers about the overpayments.

With its lobbying efforts now gaining more attention and hot on the heels of releasing the calculator tool, CCO Gareth Turpin told Mobile World Live (MWL) that “opaque contracts are leaving consumers in the dark about when they’ve finished paying off their devices”, adding whatever measures taken by its rivals “simply aren’t working”.

VMO2 further claimed it has long been aware of the issue for around a decade and actually began offering split contracts from as early as 2013, rolling bundled customers to airtime-only bills once the smartphone is paid off.

Accusation offensive
Hitting back at VMO2, an EE spokesperson told MWL that the claims are “misleading and unnecessary – designed to chase headlines at a time when consumers need confidence that the industry is clear and straightforward”.

EE added the allegations came when “VMO2 themselves increase broadband customer’s prices by as much as 50 per cent when going out of contract”, and the operator believes VMO2 currently has the biggest loyalty gap in the broadband market.

EE says it serves 80 per cent of all social tariff customers in the country, which VMO2 “could focus more on”.

CEO and founder of PP Foresight Paolo Pescatore told MWL the VMO2’s efforts “feels like a campaign to disrupt, make noise and grab consumers’ attention at a time when it is challenging to get their awareness”.

“Rivals will probably be aggrieved and feel they are transparent with their customers, whether that be with out-of-contract notifications or not charging for handsets once they are paid off,” Pescatore added.

Ofcom had banned operators from bundling airtime and smartphone contracts for longer than 24 months in 2021, allowing a 36-month term just for handset bills. This followed a mandate for providers to notify customers when their mobile, broadband or pay-TV contracts are coming to an end, after it found more than 20 million Britons were “paying over the odds” in 2020.

Pescatore noted this paved the way for a “vibrant switching market”.

When asked what other steps Ofcom take, Turpin said: “retail pricing is not something Ofcom regulates. It doesn’t mandate pricing or contract mechanisms”.

Meanwhile, Vodafone said it is “disappointed to see VMO2 confusing consumers with incorrect information and sensationalist headline”, claiming customers are “always put on split contracts”.

“They will therefore never overpay for a phone”, added the operator.

A document submitted by Vodafone in response to Ofcom’s consultation showed it only started offering split phone and airtime contracts in 2019, after the regulator demanded operators to do so.

The company now provides a price breakdown for smartphone and airtime bundling, and customers have the freedom to pair the handset with a data plan that suits them best. This will be charged via two separate debits.

Vodafone and EE stated they actively provide out-of-contract notifications, account reviews and deal recommendations, and both automatically offer discounts three months after subscribers have gone out of contract. The latter also said mid-contract customers facing difficulties in paying their bills can always negotiate to find a plan which works for them.

Price hikes
VMO2’s swindle campaign was also brought forward at a time when operators in the UK moved to introduce mid-contract price rises. A recent survey by Which? figured O2 and VMO2 customers are most at risk of the highest price rises for data plans, which shoot up by over 17 per cent.

“Rightly, there has been a great deal of scrutiny over price increases this year, however for those continuing to pay for a handset they already own, this is a far more costly problem,” Turpin argued.

EE, BT, 3 UK and Vodafone UK also introduced an inflationary price hike of more than 14 per cent, and each had launched voluntary measures to notify clients, including providing a monthly price calculator or releasing a smart savings guide.

Disproportionate effect
VMO2’s research with a non-profit Age UK London further revealed handset-inclusive data plans disproportionately impacted the elderly and financially vulnerable, with 60 per cent of 1,008 respondents aged over 65 still registered to an expired contract.

The operator believes this segment could be spending a week’s worth of state pension on their paid devices annually, while 44 per cent of out-of-contract customers from a wider age group are earning less than £15,000 a year.

Turpin told MWL its campaign is “not about pointing fingers at individual operators”, but the industry should collectively “go further for consumers” when it comes to marketing handset prices.

“Undoubtedly, the industry as a whole could do more for consumers. The industry is in a state of flux. Ironic though, given all the price rises across fixed and mobile by all operators,” Pescatore commented.

“Looking further afield, the way consumer electronic devices are marketed, packaged and sold should be explored.”

[1] https://www.mobileworldlive.com/devices/news-devices/vmo2-accuses-rivals-of-530m-smartphone-swindle/
[2] https://www.mobileworldlive.com/featured-content/top-three/vmo2-expands-smartphone-swindle-campaign/

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