Unexpected O2 price rise puts pressure on Ofcom to tackle in-contract hikes

The government is requesting that Ofcom reevaluate its rules for in-contract price rises for mobile and broadband deals after O2 announced it would raise sim-only bills by £2.50, higher than the £1.80 it had previously committed to. New rules were introduced in January to restrict telecom companies from introducing surprise price rises during customer contracts, but they did not constitute a full-on ban on the practice.

Mobile and broadband providers are still able to introduce surprise hikes mid contract, so long as they are not inflation-linked and customers are given 30 days to leave without penalty. O2 has met this criteria, though Technology Secretary Liz Kendall has accused the company of going “against the spirit” of the rules and Ofcom said it was “disappointed” with the firm.

Defending its pricing backtrack, O2 said in a statement: "We appreciate that price changes are never welcome, but we have been fully transparent with our customers about this change, writing directly to them and providing the right to exit without penalty if they wish."

Why was O2 allowed to change its price increase?

By increasing its prices beyond the figure it had previously included in sim-only customer contracts, O2 has drawn a lot of criticism. The government, consumer campaigners, and news outlets have urged affected customers to cancel their contracts, mainly so that they can secure a better deal elsewhere, but also to discourage other providers from making similar moves. However, it is essential to note that O2 has not breached any Ofcom rules.

The controversy stems from the new 'pounds and pence' restrictions launched by Ofcom in January this year and reported by some as a ban on surprise price hikes. In reality, the new rules only prevented phone and broadband providers from including inflation-linked price rises in customer contracts. Instead, providers had to list any planned increases in 'pounds and pence'.

The 'pounds and pence' system was seen by many as a win for consumers because it meant that providers could not prevent customers from leaving for free if there was a spike in inflation and a huge price rise. However, it did not ban in-contract hikes or surprise increases. It also left some customers paying significantly more than they would have under an inflation-linked calculation, as a flat increase can work out to be far greater than an inflation-linked one.

What's more, the rules still allow providers to hike prices beyond what customers agreed to when they signed up. The key difference to the old system is that customers are allowed to leave if they are unhappy with the surprise increase.

Can O2 customers cancel their contracts?

O2 customers on sim-only deals will be able to cancel their contracts because the new price rise was not included in their contracts when they signed up. They will have a 30-day window from when they were notified of the price increase to leave.

It may be tempting to cancel your deal based solely on the surprise price hike, but it is worth doing the research and ensuring that, even at the new O2 price, there are better options available. In all likelihood, the answer will be yes. O2 is not usually one of the cheapest mobile providers on the market and the perks it offers to sim-only customers are unlikely to hold a significant cash-equivalent value. It is also relatively easy to compare deals and switch.

For example, O2 offers a 12-month sim-only deal with 60GB of data and unlimited calls and texts for £9.50 a month, set to rise to £12 in April 2026. iD Mobile offers a 12-month sim-only deal with 50GB of data and unlimited calls and texts for £4 a month, rising to £8 a month after three months. That equates to £131.50 over the next 12 months for O2 and £84 for iD.

Will there be more surprise price increases?

It was always possible that a mobile or broadband provider would introduce such an increase, as it is within the Ofcom rules. However, the controversy this move has sparked is unlikely to be beneficial to O2's bottom line and could deter other providers from following suit.

If Ofcom decided to make sure a recurrence of this situation was impossible, it could ban in-contract price hikes entirely, rather than relying on the 'spirit' of the rules to keep providers in check.

Tom MacInnes, director of policy at the Citizens Advice, told the BBC: "We've always said fixed should mean fixed," and added the 'pounds and pence' rule "hasn't gone far enough to protect customers".

"If one company is able to get away with this, other providers could follow suit," he said.

"The time has come for the regulator to banish mid-contract price rises for good."

While there is no guarantee that price increases during contracts will be banned entirely, there is growing pressure on the regulator to tighten the rules. In a letter to Ofcom, Liz Kendall wrote: "I believe we need to go further, faster. I am keen that we look at in-contract price rises again."

For more information on how to save on mobile costs, check out our article 'How to save money on your mobile phone bill'.