A wave of price rises is coming to European telecoms, with many customers soon to face above-inflation increases in their monthly bills. What are these price rises based on, how much they are set to be, and how have they been implemented and communicated?
As households contend with the cost of living crisis, telcos themselves are facing operational and commercial headwinds, including high inflation and increased energy and labour costs. Following years of falling prices in the sector alongside significant investment in infrastructure, a growing set of operators has sought to establish a more sustainable long-term pricing model.
A number of operators have embedded annual price rises in consumer contracts as a means of providing more predictability for consumers than ad-hoc increases. These increases are often linked to a measure of inflation, with most of the 12 operators we’ve studied next increasing customer bills in April 2023.
For 10 the 12 operators analysed, in-contract price rises are based on the Consumer Price Index with an additional ‘+x%’ component of between 3% and 3.9%. Some price rises are based on a fixed percentage, which – in the current economic environment – appear more modest.
10 of the operators studied apply price rises to a customer’s overall monthly bill, although two have exempted the device component of a given plan or certain tariffs altogether. Half of the 12 telcos studied impose annual increases on new, renewed or upgraded contracts, with the other six also applying them to the back book.
Contractual price rises by some operators have drawn criticism from some regulators and have even become a point of competitive differentiation. In the UK, Ofcom is examining operators’ communications of future price rises at the point of sale, while there have been reports that operators in Ireland could be investigated for price signalling.
Operators are supporting consumers but face their own challenges
With many households currently experiencing a cost of living crisis, consumer protection is high on the regulatory agenda, and policymakers are asking the telecoms sector to do more to help consumers cope with pressures on their finances. Operator-led initiatives to support vulnerable customers have been available for several years, for example voluntary social tariffs for broadband, which provide low-cost plans to recipients of certain state benefits. Other support has included additional data and free, refurbished smartphones.
Telcos themselves are contending with operational and commercial headwinds, including the recent surge in energy costs, worsening labour relations and greater price sensitivity among consumers. According to Vodafone, the increase in energy prices means that it alone faces a €300m rise in costs this fiscal year, while Magyar Telekom (Hungary) has cut electricity consumption to help control opex. A1 (Telekom Austria Group) expects its total electricity bill to have risen 45% (around €45m) in 2022 with labour costs a major driver of opex pressure.
Telcos have introduced ‘pricing mechanisms’, often linked to inflation
The current external challenges compound a period of price deflation for telecoms services in tandem with continued investment in infrastructure, fuelling the sense that some market form of correction is needed. Consequently, a growing number of operators have sought to establish a more sustainable long-term pricing model for the sector. Most of these so-called ‘pricing mechanisms’ are linked to a measure of inflation, and were introduced before the recent external economic factors. Our research finds that the scale and timing of price increases differ, as do their method of application and how they are communicated (see Table 1).
On average, price rises are set to be 2.6% above inflation
As Table 1 shows, contractual price rises are now commonplace across the UK and Ireland. The practice has been adopted by Vodafone as it seeks to take “price action” throughout Europe, and has also emerged as the preferred approach of several other operators. Of the 12 operators we’ve analysed, seven will next increase prices in April 2023. Vodafone will do so in Portugal and Spain in January 2023 (the first telcos in these countries to apply annual uplifts in this way), although customers of WindTre in Italy will not see their bills rise until April 2024.
In-contract price rises are typically linked to inflation, more often than not the Consumer Price Index (CPI), which usually sits below the Retail Price Index (RPI). Of the operators we’ve researched, 10 use the CPI, with Virgin Media O2 the only one to use RPI. Three Ireland is an anomaly, with its contractual price rises not being tied to the rate of inflation, but instead based on a fixed and predetermined percentage figure. In the current economic environment, a 4.5% increase (due in April 2023) appears comparatively modest.
Price rises embedded in customer contracts often feature a ‘+ x%’ component, which is 2.6% on average for the set of operators we’ve studied that link increases to inflation. Three Ireland has a higher figure (at 4.5%), but this standalone uplift is not linked to inflation. Vodafone Portugal, Salt and WindTre are not increasing prices by more than the CPI (i.e. the + component is set to zero), although the latter will impose a minimum 5% uplift annually regardless of the rate of inflation. In contrast, TIM adds 3.5% to the CPI but has capped any price rise at 10%. For the eight operators that do impose above-inflation price rises, the additional component ranges from 3% to 3.9%.
Price rises typically apply to the whole bill, although operators have shielded some customers
Like the magnitude of price rises, there are also differences in how they have been applied. For Virgin Media O2 and customers of Vodafone EVO, annual increases relate to airtime only. The rest apply price rises to a customer’s overall monthly bill – i.e. there is no distinction between the service and device aspects of the plan. Operators such as Vodafone Ireland do exclude a range of tariffs and services from annual price rises, including 30-day SIM-only deals, home broadband, out of plan charges and smart tech products.
In terms of who the price increases apply to, the picture is more mixed with half of the 12 operators we’ve monitored applying increases to new, renewed or upgraded contracts, rather than to their entire customer base. The remaining six have introduced annual inflation-based price rises into the contracts of both new and existing customers – in other words, the front book and back book. Vodafone, however, does ensure that its customers in Portugal, Spain and the UK that are considered vulnerable are exempt from the increases.
Most telcos have publicised their intention to introduce annual price rises in advance of them coming into effect. Most contractual price rises were introduced when inflation was in the low single digits in an attempt to deliver more predictability for consumers. Of the operators we’ve studied, only two of the 12 (Salt and Vodafone Spain) have allowed their customers to leave their contracts without penalty if they do not accept the proposed modification. In Italy, the introduction of CPI-based pricing by TIM and WindTre was not considered a material contractual modification, providing no avenue for consumers to exit free of charge.
What has been the reaction to these mechanisms?
Forthcoming price rises have proved contentious and drawn some criticism. In some instances, not raising prices has become a competitive differentiator: Iliad Italia has ruled out inflation-linked price rises, while some UK operators, including Giffgaff, Hyperoptic and Tesco Mobile, have committed not to raise prices during a customer’s contract or until a given date. Hyperoptic has also called for emergency measures on mid-contract price rises to protect consumers. The Committee for Advertising Practice (CAP) has proposed guidance in this area, with its final advice to industry expected to require clearer, simpler and more transparent marketing. Meanwhile, Ofcom is of the view that significant, CPI-linked price rises next April may be irresponsible, and has launched an enforcement programme to scrutinise how upfront operators were about annual increases at the point of sign-up.
In Ireland, telcos could be subject to a competition investigation into whether advance warnings of price rises by eir, Three and Vodafone constitute a potential threat to competition. Consumer advocates argue that operators’ statements that they will be increasing prices every year at a set percentage plus the rate of inflation amount to price signalling, which is a prohibited practice the Irish competition authority has come down hard on in the past. In Portugal, it is poor communication of price increases – rather than the flagging of them – that has led the regulator to impose financial penalties.
