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Why are mobile prices going up?2 Apr 2017

A row of phones

Fuss Free Phones has a standard tariff of £20 a month for 600 minutes. It’s not a contract and you can leave at any time. We never charge more without asking first. We think charging is all about making sure your battery will power your phone, not how to get more money out of you.

Some time ago there was a brouhaha over mobile networks tying people into a contract and then putting up the price.

Fuss Free Phones doesn’t do any of these things. We don’t have contracts, we don’t tie you in and most of all we don’t put up prices.

When people complained about what the other networks were doing they reached an accommodation with Ofcom: price could go up but only in line with inflation. This was deemed “not increasing the price”.

But we keep things much more simple than that: no price rises.

It’s not the way other networks behave. Anyone on an EE tariff will recently have had a letter explaining that the prices are going up, by as much as 60 per cent. And Vodfone has increased prices too.

This is a very strange thing to happen for a number of reasons.

Mobile phone call costs don’t generally go up. A major cost in running a phone network is computer power and that just gets cheaper and cheaper. When I was a kid, in the late 1970s  I had a home computer and bough 24k of memory for it because it was a bargain price of £1 a kilobyte. Now memory costs £1 for 3 Gigabytes. That’s three million times cheaper. Hard disks have been even more spectacular and processor power and internet bandwidth have all got cheaper and faster.

Another reason that it’s strange that EE has put its prices up is the lack of inflation. The traditional reason that things get more expensive is that they just do. Inflation means that everything costs more and everyone gets paid a little more.

But we live in a strange time of almost no inflation. Maybe fractions of a per cent, certainly not the 60 per cent EE customers have just got wind of.

But most surprising of all is that when BT bought EE the company didn’t see price rises coming. Indeed it expected the opposite – prices falling. When BT was asking shareholders to recommend the deal the advice was to expect prices to fall.

In a document sent out to shareholders prior  to a meeting on Thursday 30 April 2015 to agree the purchase  BT said

“Increased competition has led to a decline in the prices which EE charges for its mobile services and is expected to lead to further declines in pricing in the future.”

So what has happened to give BT the space to do the opposite? It’s a lack of competition. And this is an un-intended consequence of Ofcom trying to drum up more competition and failing.

The event BT was looking at which it expected to drive prices down was the merger of O2 and Three.

The Spanish owners of O2, Telefonica, want to sell the company. There is more opportunity for them in the South American market and to compete in the UK needs to combine fixed line, broad band and television with mobile. This was not something Telefonica wanted to do. So the deal was agreed with Three, a bunch of people were told that their services were no longer required and Telefonica looked at what to do next.

But then Ofcom stepped in and said that dropping from four networks to three in the UK would be bad for the consumers (and I’ve strong views on why it did this), and even got the European commission on its side.

The result was both O2 and Three not really having their heart in the market and certainly not in the business of cutting prices to compete, especially if the deal might go through and they were just stealing customers from each other.

The only other player, Vodafone, has offered great deals but being beset with both technology and process issues in its customer services it’s been losing customers faster than it’s been gaining them. And has even increased some roaming and picture messaging prices.

So suddenly BT found itself in a place where it didn’t expect to be: able to put up prices. BT is wringing profit out of Ofcom’s Failure.

Here at Fuss Free Phones we won’t do that. We don’t even do the Ofcom approved thing of increasing prices in line with inflation. That’s not to say that our price will always be £20 for 600 minutes, with our telephonist service and the unique no-nuisance calls it’s very hard to do a price per minute comparison, but what we won’t do is tie you into a contract and then change the price.


Simon Rockman