When it comes to dealing with the public, Cellnet and Vodafone were once compelled to go through third parties, and now choose to do so. If you go to your local shop, you'll probably be offered a phone that costs well over 200 pounds to make for little or no cost. The reason is simple: They'll get the money back later!

It works like this:
The cellular network runs the system, and charge the middleman (person?) for airtime. Perversely, the intermediary is called a "Service Provider" (although they don't provide any service, they just sell it). The SP provides a commission of up to two hundred pounds to the shop when they get you to sign a contract with the SP for phone connection. That commission is used to subsidise the phone's true cost.

Once you've signed, you're usually tied for 12 or 13 months - a 12 month contract and a month cancellation period (sometimes you can give notice after 11 months).

In the mobile phone business, "reasonable" appears to have a special meaning, and could be as much as 50 pounds + VAT or even more. The service provider marks up the airtime cost by about 20%, and on analogue contracts charged for a full minute for every call, then in half minutes after the first. Calls cost between five pence and a pound per minute, depending on tariff, so there is a profit to be made!

Other little scams used to boost profits are to charge anything up to four pounds per month for itemised billing, simply printing the details that the network provides for free, and selling very expensive phone insurance.

As things stand at present, if your phone dies, or is lost or stolen, it'll cost a lot more to replace than it was new, because you'll pay the full price. You could always cancel your contract and start again, but that would mean a new phone number, and for many people, it isn't a viable option. Not being in the phone book, it is hard enough to get your number known once, let alone twice!

Orange and One2one lock the handsets to their networks, so if you want to switch across, you'll have to pay something like the remainder of the first year's standing charge, plus an unlocking fee of thirty pounds or so. I fail to see how they can justify this, but the OFT has been satisfied by a reduction this charge.

In mid 1996 there was a paper published by the EC declaring that locking phones to a particular network is anti-competitive, and therefore contrary to EC law. When this is taken notice of (and it will be, in time) the consequence is that the subsidy system will have to go, as the networks will have no way of being sure of getting their money back. In my view, the current situation probably breaches the spirit, and possibly also the letter, of the Consumer Credit Act

My guess is that we'll move to a situation where all mobile phone handsets are sold at an unsubsidised price (much more than they cost now) but with credit offered to people to buy the phone, probably interest-free for people who have a contract with a network. Of course, the current situation is that they offer interest-free credit, but you never finish paying it off!

I'd expect the payments on the phone to be about 10 pounds per month, with the typical charge on a contract dropping by the same amount. This would allow people to change networks, would give second-hand mobile phones some resale value, would reduce the overheads involved in attracting new subscribers, and would comply with EC regulations. I hope it happens! In the meantime, see the Affordable Connections page for a way to cut costs.

©1998 , Hairydog Productions  

cellular. v1.52 17 August 98