UK Operators Plan Inflation-Busting Price Rises

In the coming weeks, telecom operators in the UK will implement sweeping price rises for many customers midway through their contracts. It’s a controversial move, mostly because of the magnitude of the planned increases and their timing in a period of economic uncertainty.

Price rises each April are now commonplace in the UK, with most operators using an inflation-linked calculation and adding up to 3.9 percentage points. The method received relatively little attention when inflation was low, but now that it’s above 10% — the highest level in 40 years — the impact is far greater (see Table 1).

O2 will make the steepest hikes. It uses the January Retail Prices Index (RPI) rate of inflation, which this year was 13.4%, plus 3.9 percentage points. This equates to a whopping 17.3% rise. BT and Vodafone base their calculation on the Consumer Prices Index (CPI) rate, which stood at 10.5% in December 2022, but this still means a hefty 14.4% increase.

Nobody likes to see prices go up. But the telecom industry is correct to point out its own rising costs, as well as heavy ongoing investment in mobile and fixed-line networks necessary for ever-increasing demand.

BT recently noted that its energy bill has leapt by about 80% over the past 12 months. It added that demand for data on its network has trebled in five years as household spending on telecom services in the UK has fallen by 19% in the same period. The company argued that the planned changes mean an average increase of only slightly more than £1 a week for most of its customers (see Instant Insight: BT Results, Fiscal 3Q22/23).

Compared with price rises for fuel, energy and groceries, the increase in mobile and broadband bills doesn’t appear as significant. But that’s not to say its impact won’t be widely felt. In December 2022, Ofcom said that about a third of UK households — over 9 million — are having problems paying their bills, more than double the number in April 2021. This is an alarming statistic, given the political importance of narrowing the digital divide and making connectivity more inclusive.

In September 2022, the UK regulator found that a mere 3% of eligible households had signed up to a social tariff. The statistic rightly raised questions about operators’ efforts to promote dedicated packages for people on state benefits.

But things seem to have improved since then. Several new social tariffs have broken rank; Vodafone said last week that it will exclude financially vulnerable customers from broadband price rises, and Virgin Media is allowing affected customers to exit contracts without paying a penalty. But I still think there’s plenty more the industry can do.

Ofcom is looking at whether operators are sufficiently informing people about price rises. In December 2022, the regulator started investigating compliance with its rules about making the terms of a contract clear when customers sign up. And in February 2023, it started a probe into whether the practice of annual rises gives people enough certainty regarding their bills, given the current unpredictability of inflation.

Recent research from CCS Insight shows that consumers aren’t taking the changes lying down. Among people affected by 2022’s rises, 16% told us they negotiated a better deal, 14% moved to a cheaper plan and 8% changed provider. Our clients can access these findings and more here. This should sound a warning to operators ahead of the latest round of increases.

The situation could also present opportunities for any provider looking to buck the trend. Full-fibre network operator Hyperoptic is one of the few promising a price freeze. The company even recently launched a TV campaign designed to shame big networks for their actions. And in mobile services, some virtual operators and sub-brands are also freezing prices, including Smarty, Lebara and giffgaff.

One element of the price rises doesn’t quite sit right. Some providers, such as BT, are applying increases to mobile phone contracts as well as airtime deals. Surely phone procurement is a fixed cost for operators, unaffected by fluctuations in energy prices or growing network demand. Case in point, operators that offer split contracts including O2 are only applying increases to the airtime element.

But overall, I believe the planned price increases are mostly justified. The size of the hikes may feel insensitive in a cost-of-living crisis, but telecom services in the UK still offer excellent value for money.

However, the industry seems to be letting itself down when communicating the changes and supporting the vulnerable. This year will probably be the peak of annual rises, with inflation set to fall sharply from 2024. Until then, operators may need to weather backlash from customers and the media before making it to calmer waters.

Table 1. Selected UK operator price rises, 2023

OperatorPrice riseNotes
BT and EE14.4% (CPI plus 3.9 percentage points)Applies to most broadband, mobile and TV plans, including all phone plans
O217.3% (RPI plus 3.9 percentage points)Only applies to airtime deals
Sky Mobile8.1% (on average)Price rises were introduced in February for customers out of contract
TalkTalk14.2% (CPI plus 3.7 percentage points)Applies to broadband but not TV
Tesco Mobile14.4% (CPI plus 3.9 percentage points)Price rises will be applied at the end of contracts
Three14.4% (CPI plus 3.9 percentage points)Only applies a 4.5% rise for customers who joined between October 2020 and October 2022
Virgin Media13.8% (on average)Affected customers can leave without paying an exit fee. In 2024, an RPI plus 3.9 percentage point calculation will apply, similar to that of partner O2
Vodafone14.4% (CPI plus 3.9 percentage points, but not linked to inflation)Plans started before December 2020 are based on RPI. Evo plans will only see a rise to the airtime element
Source: CCS Insight

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