Mobile phone contracts: Which? calls for ban on price hikes mid-term

Mobile phone network Three has joined Vodafone, Orange and T-Mobile in raising the cost of monthly contracts for existing customers, adding impetus to a call to get such price hikes banned.

Consumer organisation Which? has turned up the heat on the issue by submitting a formal complaint to telecoms regulator Ofcom, and launching a "Fixed Means Fixed" campaign calling for an end to price increases on "fixed" mobile phone contracts.

Three upped its "pay monthly" contracts by 3.6% on Monday – a move that affects more than 1 million customers and adds £1.26 to a £35 a month bill. Earlier this year Orange and T-Mobile imposed similar increases, while Vodafone kicked off last autumn by announcing it was "simplifying" people's bills ... by rounding them up.

Most consumers are unaware that mobile phone companies can increase prices mid-term after someone has signed up to what they thought was a fixed price for a specified period, typically two years. In all these cases consumers have been unable to cancel without paying a fee.

A consumer law expert told Guardian Money that a strong argument could be made that the firms are in breach of "unfair terms" rules, and suggested that those who are unhappy should complain to their local trading standards department.

Which? says that as many as 10.5 million people may have been affected by the increases, and estimates that by the end of this month nearly £35m will have been "appropriated" from customers.

"These hidden price rises mean millions of people are forced to pay more than they expected at a time when household budgets are already squeezed," says Which? executive director Richard Lloyd. "They are then trapped in a contract, unable to switch to a cheaper provider without paying a hefty penalty."

Last September, Money told how Vodafone had incensed many of its customers by announcing that everyone who took out a contract before February 2011 would have their bill rounded up to the nearest 50p. If you were paying £30.65 per month, you are now forking out £31. It also doubled the costs for those who regularly exceed their internet limit.

A little later, Orange announced a 4.34% rise for existing pay monthly plans, which took effect on 8 January. According to Orange, this was below the retail price index measure of inflation, and it said its terms and conditions allowed it to increase charges by up to the RPI in any 12 months.

T-Mobile's price hike – in this case, 3.7% – took effect on 9 May. It also said that its small print allowed it to increase its charges mid-contract, so long as it was not by more than RPI.

Three's increase is on contracts taken out before 8 March this year. Yet again, it told customers that "our terms and conditions allow us to raise prices in line with inflation".

According to Ofcom, customers are only allowed to cancel their contract if a change causes "material detriment", although this is not clearly defined. The phone operators seem to have so far successfully argued that the changes they have made don't do that.

While it is fair to say the amounts are often quite small – 50p or £1 a month – the numbers of people involved mean that the hikes could net the industry up to £90m a year.

Which? has asked Ofcom to "urgently investigate" and rule that "fixed means fixed". It wants the price, and all other aspects, to remain the same during the contract period. If there is a chance that prices may rise, operators must be more upfront and allow people to switch without penalty,.

Ofcom told Money that it sympathises, and that this is "definitely an issue we are aware of", and one that is being taken seriously.

It adds: "While current rules allow for contracts to include price increases in certain circumstances, after receiving consumer complaints, Ofcom launched a review in January 2012. This has identified a number of potential issues ... and the adequacy of the current level of customer protection. We will consider the material provided by Which? alongside this evidence."

So what can customers do?

Support the Which? "Fixed Means Fixed" campaign by adding your name to an "e-pledge" at which.co.uk/fixed. If people sign in large numbers, it should make Ofcom take notice.

Sign up with a phone company that hasn't (yet) increased the cost of its pay monthly contracts. O2 confirmed it had not increased prices midway through contracts, adding: "At O2, we are committed to keeping our customers informed of any changes in an open, trusted and clear way ..."

If you've been hit with an increase, complain to your local trading standards department. If they receive enough complaints, they may investigate, or pass it to the Office of Fair Trading, says Christian Twigg-Flesner, professor of commercial law at the University of Hull: "My immediate reaction is that Which? has a strong argument that what is happening is not acceptable under the Unfair Terms in Consumer Contracts Regulations."

These state that one example of a term that may be regarded as "unfair" would be one that "enables the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract".

Twigg-Flesner adds: "It's not always unfair to have a price variation clause in a contract, but you have to have a clear reason or reasons why you want to exercise this. A pure economic reason isn't good enough."

When Money looked at some of the mobile phone firms' small print, we could see little or nothing that explained the increased prices.

However, don't simply refuse to pay the additional charges and wait to be sued. That won't work, warns Twigg-Flesner, because you would need to cancel your direct debit – and if you do that, you may find that you are in breach of contract.