Via Yahoo Finance

The days of staying on hold while listening to elevator music and battling with your mobile phone operator to try to exit a contract, are officially over. 

New rules introduced this week from Ofcom, Britain’s telecoms watchdog, mean that sending a single text message will be enough to terminate a mobile phone contract and switch suppliers.

Jonathan Lenton of Ombudsman Services, welcomed the changes, claiming that for too many people the traditional process of switching mobile provider was “problematic and stressful”.

The replacement of the current switching process, which negatively affects 2.5 million customers, is expected to trigger a major shakeup in the mobile phone industry. 

Phone networks are set to battle to steal Britain’s 28 million pay-monthly mobile customers, who now have more freedom than ever before to jump between providers.

Assuming an average monthly handset contract costs around £18.50, mobile customers may collectively be overpaying by approximately £330m each year. 

Ofcom estimates that consumers could also take back £10m a year from mobile phone operators, who are no longer allowed to charge them for overlapping services when they change providers.

Meanwhile, the 1.5 million people on expired mobile phone contracts, who continue to pay their full monthly charge and have not yet changed services, are expected to start an exodus toward cheaper alternatives.

The businesses most likely to be affected by this change are the big four phone networks: Three, BT-owned EE, Vodafone and O2, which have 75pc of the market share in the UK, according to data from Statista. 

Alternative mobile operators, such as Sky Mobile, Tesco Mobile, Virgin Mobile and Giffgaff, could pick up a bigger chunk of the market as people search for value for money deals, experts claim.

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Big mobile providers need to “sit up and take notice”

Ernest Doku, mobiles expert at uSwitch, says consumers are turning away from upgrading to shiny new smartphones — the big four providers’ bread and butter —  which are no longer considered “sexy and exciting” enough to warrant a costly monthly contract. 

“That’s where we will see the main shift, consumers spinning down from those previously costly handset- tariffs,” he says. “Consumers are becoming more savvy on how much a gig is worth and some of those tariffs aren’t as appealing.”

Gartner analysts warned earlier this year that a global smartphone slump is set to continue, and forecast a 0.5pc drop in smartphone sales. Its prediction came after Apple trimmed its sales forecast in January for the first time in 15 years.

Doku believes Ofcom’s changes are a chance for big mobile operators to “sit up and take notice”. Alternatively, they risk losing market share to smaller providers that offer better deals, without the previous draw of regular smartphone upgrades.

“A lot of those nimble providers are trying to nip away and gain market share,” he says. “There are a number of attractive packages that do offer value adds, whether it’s zero rating the amount of data that you use on social networks, or streaming apps like Sky Sports or movies without eating into data allowance.” 

Emma Mohr-McClune, head of the consumer services, platforms and devices team at data analytics company GlobalData, believes the impact in terms of churn could be “significant” and that smaller networks will be the key beneficiaries. 

She believes Ofcom’s move will cause UK operators to copy a well-known marketing tactic in the US known as “switcher promotions”. These deals typically offer new device and connectivity bundles that specifically target customers from other mobile networks, with incentives to switch and even move their phone number at the same time. 

Yesterday we saw one of the first examples of this, when Sky Mobile promoted a discounted smartphone contract deal while also casually name-dropping the Ofcom changes as a selling point.

As well as helping phone networks to attract new customers, analysts hope that the changes will prompt networks to improve their services for existing consumers. 

If the barrier to swapping your network is as easy as sending a text message, then experts hope that the networks will be spurred into action to try to retain customers.

“For too long their emphasis has been on poaching customers, rather than trying harder to keep the potentially loyal ones they already have,” said Alex Tofts, broadband expert at Broadband Genie.

A Vodafone spokesman said it was too soon to tell what the effect of these new rules will be, but “welcomed the initiative” from Ofcom. The company believes the figures from the last financial year are an “encouraging” sign, because the churn rate was the lowest it has ever been, meaning fewer customers had been swapping to rival services.

Will 5G be enough to sway customers?

Phone networks have been aggressively advertising the launch of 5G, promising faster speeds for mobile data. For customers who are on networks which aren’t planning to support 5G as it launches in the UK throughout the year, Ofcom’s push to encourage easier switching could mean that more customers swap networks in order to use it.

Responding to the news of Ofcom’s changes, Dave Dyson, the chief executive of Three UK, said that Three is “preparing to launch the UK’s fastest 5G network, in more cities and towns than anyone else this year.”

A survey of people in the UK carried out by Deloitte earlier this year found that 19pc of smartphone users would switch to a 5G network if they started to hear good things about it.

15m people could be prepared to switch to 5G networks, Deloitte estimated. It expects shipments of 50,000 5G-capable smartphones in the UK this year, rising to between 2m and 3m next year.

Mobile operators might already find themselves under pressure this year because of hefty 5G investments. These new changes could cause more strain. It is likely that they will be forced to offer discounts not only on their current smartphones, but on the next-generation handsets to push people into buying them, experts argue. 

“So far, there are few really killer arguments to incentivise a customer upgrade from 4G to 5G, so we’re expecting to see a flood of 5G handset promotions– particularly in the run-up to the Christmas sales season, the most important few weeks of the entire sales calendar for mobile operators,” says Mohr-McClune. 

“The timing couldn’t be worse for the larger players.”