What you need to know

SIM-only is now the most widely used type of mobile payment plan (38%) ahead of contracts bought with the phone (32%). Whilst the market had been moving in this direction in recent years, COVID-19 is likely to have accelerated it with consumers trying to save money on their contracts. To put the shift in perspective, 39% of people who had a phone with a network connection bought a contract with the phone in 2018, compared to just 28% having a SIM-only plan.

In terms of how COVID-19 will affect the market going forwards, 29% of people with mobile contracts say the financial uncertainty caused by the pandemic means they are more likely to switch to a cheaper network provider. This could benefit Three in particular as its subscribers pay less than the other major networks on average per month. Additionally, Three has the most widespread coverage of 5G and 54% of people intending to upgrade to the connection say that coverage is the main factor in their choice of who their next network provider will be.

The biggest threat to network providers is that there is a movement towards greater consumer flexibility and fewer ties to fixed contracts. Not only has there been a rise in SIM-only deals but also Ofcom is banning networks selling locked smartphones from December 2021 to enable people to switch providers more easily.

Over the next year network providers should put a greater focus on entry to mid-level 5G devices ahead of the usual flagships. With consumers concerned over their finances, devices like the Galaxy A42 5G, which is available for £349, are likely to appeal to people who want to upgrade to 5G without paying too much.

Key issues covered in this Report

  • The short, medium and long-term impact of COVID-19 on how consumers buy and use their mobile contracts, including changes to what they’re looking for in call, text and data allowances.

  • Which mobile network provider consumers are subscribed to, whether it is a contract, SIM-only or PAYG plan and how pricing compares between providers.

  • Consumers’ intention to buy a 5G phone and contract in the next year and the importance of 5G coverage in deciding between providers.

COVID-19: market context

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. As the case level rose, the government ordered the closure of non-essential stores on 20 March.

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. It wasn’t until 15 June that non-essential stores were allowed to reopen, followed by pubs, restaurants, hotels and hairdressers on 4 July, and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November and Scotland introducing a new five-level system of coronavirus restrictions.

Despite these restrictions, however, case numbers continued to increase. All four UK nations tightened restrictions in January 2021, effectively leading to a full UK-wide lockdown. There is no defined end date for the lockdown, although the legislation regarding the English lockdown that was presented to Parliament extends to 31 March.

The UK’s vaccination programme started on 8 December 2020, and with both the Pfizer-BioNTech and the Oxford-AstraZeneca vaccines licensed for use in the UK, the government aims to offer a vaccine to 15 million people by mid-February.

Impact of the January lockdown and vaccination rollout

Our core assumptions on the path of the pandemic had always included an expectation of severe disruption to markets and consumers’ lifestyles well into 2021, with a strong likelihood that the virus would still be with us even into 2022. Although the second wave of infections and subsequent lockdown puts us towards the negative end of our initial expectations, these developments are still broadly consistent with our previous assumptions.

Similarly, Mintel had factored in the likelihood that an effective vaccine would be available from early to mid-2021. The licensing of the Pfizer-BioNTech and Oxford-AstraZeneca vaccines puts us slightly ahead of that assumption, but the challenge associated with rolling out a new vaccination programme to millions of people means our previous assumptions are still broadly consistent with the new reality.

Economic and other assumptions

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its November 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP will have fallen by 11.3% in 2020, recovering by 5.5% in 2021 and 6.6% in 2022. GDP isn’t expected to return to pre-COVID levels until Q4 2022. The central scenario has unemployment peaking at 7.5% in Q2 2021.

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q4 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

The second wave of infections and subsequent lockdowns means that the short-term prospects for the country are consistent with the OBR’s negative scenario, but this needs to be balanced against the fact that the vaccine rollout is ahead of even the OBR’s central scenario. Medium to long term, then, we are still basing our forecasts and market analysis on the OBR’s central economic scenario.

Products covered in this Report

This Report covers the state of play of the UK mobile network providers market, including the ‘Big Four’ and the MVNO (mobile virtual network operators). The Big Four refers to EE, O2, Vodafone and Three whilst the likes of giffgaff, Sky Mobile and Tesco Mobile are classed as MVNOs as they run off the network provided by the Big Four.

Payments for mobile phones can be made in three ways. The pay-as-you-go (PAYG) system involves the user continuously topping up their call minutes, SMS (short message service) and data allowance, without any long-term agreement with the provider. However, consumers need to pay the full price for the phone upfront.

The second option is by paying off the phone in instalments with a contract over a certain period of months – the most common being 24 months. In this Report, these agreements will be referred to as ‘contract with a phone’, ‘contract bought with phone’ or ‘traditional contracts’.

There could still be an upfront cost for the handset in this payment plan, but it will be significantly cheaper than the outright cost of buying it would be. The amount paid each month dictates the price of the phone upfront: the more the customer pays per month, the less they pay upfront. Once the customer has agreed the contract, however, they cannot get a new phone from the provider unless they buy out the rest of their deal. However, some providers do offer a way for consumers to easily end their contract and get a new phone (for example EE’s Upgrade Anytime Plan).

The third option is a SIM-only plan, where the customer receives a SIM card from a network provider as part of a monthly call, text and data plan, but can use the SIM in any unlocked phone, not necessarily bought from that provider. This can be a rolling agreement, where again the user can easily cancel and change the plan or provider. When discussing the section of people who have either a SIM-only deal or contract with a phone (but not PAYG), this Report refers to them as ‘mobile contract subscribers’ or ‘people with mobile contracts’.

In this Report, mobile data allowance is what enables customers to access the internet out of home, so does not include a Wi-Fi connection.

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