O2 phone prices to rise with inflation (and, no, you can't switch)
O2 have announced that an annual price hike in line with inflation will be enshrined in their mobile phone contracts from today.
Why today? Because today new Ofcom rules announced in October came into force.
The new rules should make it easier to leave a mobile phone, landline or broadband contract to escape a price hike: any new telecoms contract taken out from today onwards can be ended without penalty if the provider chooses to increase the core price.
That is, unless it's an O2 mobile phone contract.
O2 will increase prices based on RPI in March.
After that, the next price hike in line with inflation will come in April 2015 and increases will continue annually, or until O2 come up with some other cunning plan.
O2 customers who started a new contract or upgraded their phone on or after today won't be able to leave when their prices increase, unlike everyone else with new telecoms contracts, because the price increase was written into their contracts when they signed up.
Keeping up with inflation
O2 have increased prices in line with inflation many times over the past few years.
However, up until today, they've been able to do that without worrying that customers will leave: under the old Ofcom rules on price hikes customers only had the right to leave their contract if the increase in costs caused customers material detriment.
O2 argued successfully that increasing prices in line with the Retail Price Index (RPI), one of the most widely used measures of inflation, did not constitute material detriment: they were effectively just keeping the status quo since their costs were increasing too. Many customers, especially those in 'smartphone debt' likely disagreed with this argument but Ofcom didn't.
Now, however, the material detriment rule is out: if telecoms customers see any price hike, even one in line with inflation, they can leave.
So basically what O2 have done is preserve their policy of increasing prices in line with inflation but they've got their customers to agree to it beforehand.
It's a masterful piece of corporate sneakiness.
On the upside for O2 customers starting or upgrading a contract today or from now on is that they know what's coming.
On the downside, they know that what's coming is a price change and, most likely, a big fat price increase, given that inflation shows no sign of slowing.
Prices to rise in March
In the short term, O2 customers can expect a price increase in their March bill.
Contract prices are going up 2.7%, which is the RPI for January. Here are some examples of how that will actually look for O2 customers.
What does a 2.7% price hike mean?
|Contract cost now||Contract cost post 2.7% hike|
O2 Refresh customers - that's customers that have a separate airtime bill and handset bill - should note that the increase applies only to the airtime part of the bill. The handset repayment will stay as it is.
Ofcom rules: a waste of time?
O2 have, to some extent, got around the new Ofcom rules on price increases with this rule.
Other providers might follow by making similar changes to their contracts, though it doesn't make your network very attractive to new customers so we'd say it's far from a sure thing.
Other providers will very likely get around this ruling in other ways, though, especially as rumblings about wholesale prices increase.
Networks clutched their pearls when an increase in license fees for 2G spectrum was announced in October last year, for example, despite the fact that they'd known about it for months.
Although Ofcom went to some lengths to stop providers finding sneaky ways to bring in de facto price hikes, like cutting the amount of minutes or texts customers have in allowance, there are still ways around the rules.
For example, the Ofcom rule applies to the core cost of the phone service the customer signed up for (the price mantra is 'fixed should mean fixed') but that means providers are still free to increase the cost of extra services without customers being able to leave.
However, it's a bit soon to say that the rules have failed: even O2 customers are getting something a little better than they had, an annual price increase in line with inflation rather than a drip drip drip of increases, and other networks haven't announced any changes yet.
Even if they do, the Ofcom ruling means that companies will have to make sure consumers are more informed about their price increases from now on.
For example, from now on letters should have the words 'contract change' on the front of the envelope to make sure they get opened.
Mobile companies might be as sneaky with their terms as ever but at least they have less opportunity to sneak up on you.