As recession looms, are consumers about to ditch their big brand loyalty in favour of MVNOs?

The weekend papers made for a bleak start to the new year with expectations that the UK will officially be in recession this week. According to The Times, the ONS will confirm that the economy fell ‘into the red’ in November.

Every day there seems to be a new story about how inflation, especially food inflation, is forcing people to make unreasonable choices about whether to ‘heat or eat’.

In March, the Consumer Price Index will reveal the extent of the damage petrol and energy prices have done to baskets. I remember looking at last year’s index and seeing that ‘communications’ showed a medium variation in price.

I suspect this year, we’ll see a similar story, though I do wonder if next year’s index might show a more marked increase – a reflection of the fact that operators are going to find the next year few years tough.

The energy bills for running networks will be higher than any industry veteran like me will have ever known. Add in the last two years of supply chain problems and you have just cause to put your prices up.

Cost of living wage increases: Three recently announced a pay rise for its retail employees. It’s the second it’s agreed in 12 months. As a result, Three retail employees in London have seen 16.8% increase since December 2021 and those outside London 23.7%.

This focus on ensuring staff can earn a living wage is commendable. But it needs to be paid for. Unfortunately, as with all the rising costs operators are facing, I can’t see any other option than to increase prices.

Small print comes home to roost. If you like to read the small print, you’ll know that most of the large network operators have inflationary increases in their contracts. Last summer, the FT reported on the practice of putting an ‘innocuous’ 3.9% rise plus inflation into contracts. It amounts to some fairly eyewatering increases for households.

Some people will take this on the chin, given the proportion they spend on telecoms compared to other essentials. But many won’t and simply can’t. Just a few days ago, Leeds City Council revealed that it is working with numerous community organisations to help address the growing numbers of people becoming digitally excluded as people kill the internet to free up cash for food or heating.

This reality is creating some interesting dynamics on pricing in the industry. Some operators see recession as an opportunity based on the understanding that many of the value focused operators experienced customer growth during Covid as people started shopping around. Supermarket mobile brand Tesco is perhaps one of the more well-known operators when it comes to making above the line statements about its commitment to not raising prices. But others have chimed in with competitor giffgaff saying it would freeze prices until the end of 2023..

I think it’s a sound strategy especially at a time when every personal finance editor will be reminding people that the MVNOs and sub brands, in general, offer the same network service and download speeds of their host and parent operators.

Often the only compromises people will have to make will be related to whether they are funding a handset (I predict more hand me downs within families and the refurb market getting a boost), access to additional value-added services (which many might say they can forgo for a short time) or the customer services model (apps and chatbots instead of a call centre).

Knowing where to start has always been a barrier for people. How do you compare like for like? That’s where sites like Uswitch will be invaluable. A quick five-minute search shows just how competitive it is if you only want to spend to £10:

  • iD Mobile (on the Three network): unlimited calls, texts and 70GB data for £10 on a 1 month only contract. This also included 5G.
  • Three came up with unlimited calls and texts and 30GB data for £9 on a 12 month contract.
  • Vodafone offers unlimited calls, texts and 40GB of data for £10 on a 12 month sim only contract
  • Talkmobile (on the Vodafone network) offered unlimited calls, texts and 60GB of data for £9.95 on a 1 month sim only contract.

Will everyone understand Talkmobile is on Vodafone and iD is on Three? Probably not. Is this a chance for those MVNOs to be more explicit about their network partner? Possibly. Is it worth tracking deals? Definitely. Not every operator will be using Uswitch or alike so I’d advise everyone to cover all the bases by looking at the operator websites or in store too. And bear in mind what you see today (the list above changed not long after I wrote this) will more than likely be gone tomorrow and replaced with something similar.

But the main point is that consumers need to look at what they really use, and therefore where they can make a saving. I think people will be surprised at how little data they use and hence how much money they could save in difficult times without compromising coverage or getting locked in for long periods.

Once people start looking, I also wonder whether we will see some people decide they don’t need to be paying for broadband and fixed subscriptions. In some areas of the country, 5G offers very acceptable fast speeds at some competitive rates – Who fancies £25/ month for unlimited minutes, texts and fast 5G data?

Many will be tempted by these sorts of deals and could potentially move away from the incumbents for the first time in their life. My guess is that once people start scouting for deals, they will more readily abandon their perceptions on brand. Which leaves me to believe it won’t be long before we see some big winners in the MNVO market. The next few months will really test loyalty and the operators putting up their prices need to be ready for the battle.

James Gray

About James Gray

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.