Are you paying too much for your mobile phone contract?

Mobile phone technology has come a long way, but the raft of smartphones that have entered the market offering a rich set of features – such as access to social networking sites and built-in GPS – all come with a hefty price tag.

The iPhone 4 was the latest must-have gadget to hit the high streets earlier this summer, promising greater resolution, multitasking, longer battery life, video calling and a five megapixel camera.

However, without a contract, this phone costs a huge £599 for the 32GB model and £499 for the 16GB model.
Orange, 02, Vodafone, Tesco Mobile and 3 were among the first to release their prices and tariffs – offering the iPhone 4 for a sizeable upfront cost, unless customers were prepared to be locked in to a high monthly tariff for two years.

Look closely, and you'll find there is little to differentiate between the prices charged by many of the providers.

"The iPhone is a much-desired premium product, and the pricing is similar because acquiring any agreements to distribute the handset from Apple is likely to come with strict retail, marketing and commercial guidelines," says Neil McHugh, co-founder of comparison website

"With tariff pricing, all providers will have to incorporate the premium handset value."

In addition, Ernest Doku, mobile expert at price comparison service, says there is a feeling that networks have used the launch of the iPhone 4 to start charging for data usage.

"The honeymoon period is now over for UK mobile users used to gorging themselves on so-called 'unlimited' internet packages," he says.

"The 'limitlessness' of such deals had been in question for some time already, and tariffs were actually subject to varying 'fair usage' policies. Under the new tariffs, data usage is now charged much more rigidly."

At the same time, the rising availability – and growing demand – for smartphones has triggered a sharp rise in the number of people signing up for two-year deals, as these phones are generally only available on long-term contracts.

Unsatisfied customers

According to a report, The Consumer Experience 2009, by telecoms regulator Ofcom (based on GFK sales data), in the third quarter of 2009, 42% of all mobile contracts were sold for two years or more. This compares with only 5% the previous year.

In fact, while in May 2008, 12-month contracts comprised 13.4% of the market, 18-month contracts 83.4%, and 24-month contracts only 3.2%, just one year later, 12-month contracts had reduced to just 2%, 18-month contracts fell to 39%, and 24-month contracts shot up to 59%.
"The move from 12 to 24-month contracts started around six years ago, and was a response to the increasing cost of mobile phone devices and the new infrastructure required with the 3G licences," says Gareth Kloet, head of utilities at price comparison service

However, there are concerns this could limit consumer choice and potentially lead to higher prices.

"Those who find they need to leave may face higher termination charges," says Robert Hammond, head of post and digital communications at Consumer Focus.

"If consumers are tied into longer contracts and rarely switch, it may also give suppliers less incentive to offer the best price deal." Also, consumers locked into long-term deals may find themselves stuck on an old phone.

Emma Jarman, 30, from south-west London, is glad she only agreed to sign up to her Vodafone deal for 18 months, as she is unhappy with her handset, as well as the customer service she has received, and plans to switch to a new model and network once her contract ends.

"I was due an upgrade last year, and went into a Vodafone store to inquire about a new deal," says Emma, who works in communications.

"I wanted a phone with lots of facilities, such as a camera, good internet access, and a long battery life. Staff recommended the Vodafone Samsung 360."

Emma agreed to take this model, but refused to sign up for a 24-month contract, and signed for 18 months instead.

"The phone was not very user-friendly – and seemed to be a poor version of the iPhone," she says. "It was also not fully functioning, as every so often, it would lose connection."

Having sent the phone back to Vodafone for repairs, Emma got it back within a week, but the same problem kept re-occurring.

"The software was still faulty and, if anything, it seemed to be getting worse," she says. "I have now sent my phone back for the second time, but plan to move as soon as I can and get a better tariff and a better handset. I'm just relieved I'm not locked in for 24 months."

The good news is that from next year, European legislation will cap contracts at 24 months and force operators to offer some contracts at 12 months.

However, some providers are already taking steps in the right direction. In July, Tesco Mobile announced that it had made all its pay-monthly tariffs available on a 12-month contract.

How can you find the best deal for you?

"The mobile market is so complex, and there are millions of different deals on offer, which change frequently, so it's little wonder customers are bewildered," says Hammond.

Many people get hit by 'hidden costs' such as charges for accessing voicemail, itemised paper bills, or for special rate numbers, such as 0800 and 0845.

"Many customers are surprised when their end-of-the-month bill is consistently over their tariff amount," Doku says. "But it's not always in the network's interest to make it easy for you to see exactly what you're paying for."

To find your perfect match, look at past bills to analyse your historical usage, and make use of comparison sites, such as the Ofcom-accredited site, to help you search for the cheapest provider that will best suit your needs.

Software developer Evgeny Shadchnev recently halved the cost of his mobile phone bill by switching to a different tariff with the same provider.

"I've been with T-Mobile for some time, and had been paying around £25 to £30 for my plan," says the 26-year-old from east London. "I decided to go online and discovered that while I was paying for a plan with 600 minutes a month, I was only using 100 minutes."

Evgeny found another T-Mobile plan that was far better suited to his usage: "I called the network's support line to ask to switch," he says. "The process was very straightforward, and I'm now paying between £10 and £15 a month on my phone bill."

"Consumers' obsession with the iPhone has in fact made it easier than ever to get a great deal on almost any other handset make or model," adds Doku.

One further option for consumers worried about being tied in for a longer period of time is to opt for a 12-month sim-only contract, as these packages offer greater flexibility by giving users some level of control of their spending.

Finally, there's good news ahead for those looking to switch to a new network. Ofcom ruled earlier this summer that, from April 2011, consumers will have their number transferred to their new provider via the special port authorisation code (PAC) within a day, rather than the current two-day maximum.

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