Mobile Operators to End Subsidies for Prepaid Handsets

Published: 8 July 2011 By Julian Stone Leave a Comment

The UK’s major mobile operators have stopped subsidising the cost of mobile handsets for prepaid customers – in response to tighter regulations on mobile charges imposed by Ofcom.

Mobile Phone BillsIf you’re thinking of taking out a prepaid mobile contract, be sure to check the price of the handset first.

Mobile companies are ending handset subsidies for prepaid customers in an effort to increase revenue for the least profitable segment of the market.

Vodafone is the latest operator to stop subsidies for prepaid handsets. Its decision came into effect at the end of last week and follows other operators O2 and Everything Everywhere, owners of Orange and T-Mobile.

The move affects customers either taking on a new prepaid deal or wanting to upgrade the handset on their existing one, and is likely to make many customers consider taking out a contract with a subsidised handset.

The decision to end the subsidies came in the wake of tighter regulations imposed by Ofcom. The telecommunications watchdog recently slashed the cost of connecting a call between mobile networks, a move which will reduce the current 4p charge to just 0.69p by 2015.

At the time of the announcement, mobile operators threatened to take action to offset lost revenue, claiming that the revenue derived from wholesale interconnection rates accounted for 10% of their overall sales.

Pressure on operators has been added to by European Commission measures to limit what companies can charge customers travelling within Europe for data and calls.

Moneyhighstreet comments: “The latest move by operators affects the cheapest segment of the market and as such the users who are already trying to save money by using a prepaid tariff to avoid being tied into a lengthy contract.

“If you already have a handset and don’t make a lot of calls or send many texts, a prepaid tariff can still help you save money.

“Those who need a new handset or want to upgrade must be prepared for a larger initial outlay, however. While cheaper phones are available, customers who want the functionality of a modern smartphone will have to pay up to £400 or £500 for high-end models.

“Some contracts can work out more cheaply than a prepaid tariff, however, and its important to compare contract prices online before making a final decision.”

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