Britain’s Phone Companies Prepare Inflation-Busting Price Hikes
Britain’s phone companies are preparing to roll out their biggest price increases in years, exacerbating a cost-of-living squeeze that has darkened the nation’s economic outlook.
The nation’s four mobile network operators -- BT Group Plc, Virgin Media O2, Vodafone Group Plc and Three UK -- are pressing ahead with plans to raise monthly charges. The size of the pickup will vary depending on how long a customer has been with a company, but the increases could be around 10% or even more.
The increases would help phone companies recoup billions they have invested in upgrading networks to cope with a surge in data usage. It would mark a shift from the constraints of competition and regulators that have to date kept prices in check. It may also alarm government officials concerned about rising prices across the economy.
“It is long overdue,” said analyst Karen Egan from Enders Analysis. “With expensive spectrum auctions, costs of 5G upgrades, the additional costs of the Huawei ban, and their own costs inflating, the mobile operators can’t afford to be that generous indefinitely.”
A price increase may also bolster the earnings of those companies, which have been left behind in a global surge in equity markets. The Stoxx Europe 600 Telecommunications Price Index is down around 24% in the last five years, while the wider Stoxx 600 Index gained about 35%.
The higher tariffs due in the coming months could spark a standoff with regulators, who are monitoring the impact of price pressures on consumers. Britons are already facing a squeeze from higher energy prices, and the Resolution Foundation estimates the average impact on incomes from higher energy bills will be 600 pounds ($824.73).
Inflation is already at its highest level in more than a decade, and is becoming a focus for government officials. Prime Minister Boris Johnson said Wednesday in Parliament that “inflation is a serious risk -- it is going up.” The Bank of England expects the inflation rate may climb past 6% this year, triple its target.
The scale of the increases coming from operators will feed inflation. Liberty Global Plc and Telefonica SA’s Virgin Mobile and O2, for instance, will raise airtime prices for all customers by 3.9% plus the Retail Price Index rate, which rose 7.1% from a year ago in November.
Several operators, at the encouragement of the watchdog, already offer so-called social tariffs as a safety net for households struggling to pay their bills. Ofcom said in July the sector should do more to help. The prospect of big price increases could provoke further concern.
“While Ofcom doesn’t set retail prices, we strongly urge telecoms providers to take account of the growing financial pressures on their customers when considering increases,” a spokesman for the regulator said in a statement Wednesday.
Spokesmen for all four companies said the hikes were necessary to pay for the cost of network investment.
Shareholders are bracing to see how customers cope with big increases. If they’re too steep, defections could follow, analysts at HSBC led by Adam Fox-Rumley said in a note published Wednesday.
“Investors should be supportive should companies choose to moderate price rises this year,” he wrote. “Far from just generating immediate goodwill with customers and politicians, it would in turn bolster the sustainability of the pricing structure into the longer term.”
©2022 Bloomberg L.P.