Vodafone will raise its rates based on the IPC. It is not as bad news for the client as it seems

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A few days ago, we learned of Vodafone’s decision to link your rates to the average year-over-year CPI starting next year. This measure comes in full escalation of inflation, which already exceeds 10%, and according to the operator, aims to guarantee “long-term business sustainability.” And we cannot deny it: the telecommunications sector in Spain not going through his best situation.

Vodafone’s decision will bring with it a price increase in its rates, but what at first seems like negative news for its customers also has a positive side. Are we facing the first step towards a general rise of its competitors? In Xataka, we have spoken with the rest of the operators to Know your position on this measure and know if they plan to do the same.

There will be price increases, but more transparent

colman deegan

Colman Deegan, CEO of Vodafone Spain

As of 2023, Vodafone will link its rates in Spain to the average interannual Consumer Price Index (CPI), something that he has been doing for a few months in the UK. Lowi customers and Vodafone customers who have contracted a social rate, that is, the most vulnerable, are not included in the measure.

The operator is already communicating it to its clients (who have 30 days to terminate the contract without any penalty) and thus confirmed it to Xataka:

“Vodafone has modified the existing contract model with its customers due to the increase in the CPI and the consequent chained increase in the price of energy, costs, services and suppliers. In this way, the European operator will link the evolution of the CPI automatically in their rates each year in a predictable and completely transparent way for their customers.

As we can see, from Vodafone they justify this measure by the increase in costs that is taking place, not only in energy, but also in their suppliers. This increase in expenses is also accompanied by a investment growth needed for the deployment of 5G and fiber.

And to this must be added a drop in service revenue caused by the hyper-competitiveness of the sector, the price war and the market trend towards low cost.

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This general deflation that the telecom sector is suffering (with the Spanish paying less and less for converged packages) is taking place in the midst of current generalized inflation, so we have a headline CPI that has skyrocketed in the last year versus a communications CPI that has fallen quite a bit.

With these data, the accounts of the main telecoms have been out of balance for a long time, and those of Vodafone Spain are no exception. The ERE of 2021 also meant a good pinch in the coffers of the English operator and, although the sale of devices and the lowi momentum they are helping to slightly offset the balance, it is not enough.

Vodafone income

Evolution of income from Vodafone service in the last two years

Vodafone has been forced to take some measures to deal with this situation, and one of them is to link your rates to the year-over-year CPIwho argue like this:

“This measure seeks to consolidate the long-term sustainability of the business and ensure the necessary resources for networks, products and services in Spain. In this sense, despite the strong year-on-year growth of the sector in terms of customers and data consumption, the prices of mobile telephony have fallen by 32% since 2008, according to the CNMC, with losses of more than 34% of revenue in the last 10 years and an erosion of business value by approximately 50%”.

Does this mean that there will be a rate increase from January? Yes, but that increase will correspond to the CPI calculated between October of the previous year (2021) and September of the current year (2022). Therefore, it will be clearer and more predictable for the user: you will know for sure that your rate is going to go up, how much, when and why.

We are not going to fool ourselves, there are increases in the main operators every year: 2021, for example, was marked by mandatory price increases in premium brands in exchange for more 5G and more unlimited dataand in 2022, we have also seen increases in the old rates of Movistar Y orange.

With this measure, those increases of 3 euros because in February and 5 euros because in October are over: the fiber and/or mobile rate will increase according to the IPC. Like pensions, come on. In addition, that increase will be proportional to what you pay: higher increases for the most expensive packages. Let’s take two examples to understand it:

  • With an interannual CPI of 7%, a rate of 30 euros per month would cost 32.10 euros per month.

  • With that same interannual CPI of 7%, a rate of 100 euros per month would cost 107 euros per month.

The fact that Vodafone accompanies these rises in different improvements in the form of gigabytes or speed (“more for more” strategy), it’s up to them. But at least the bill increase will be more transparent to your customers. What if the CPI falls or we enter deflation? Vodafone undertakes to lower the price of the rates. Let’s hope so, not only for our telephone bill, but for the rest of services and consumer goods.

Linking rates to the CPI, an example to follow?

Vodafone 02

Is it possible that Vodafone’s competitors will also decide to link their rates to the CPI? Are we on the verge of a general rise in the rates of all operators? To get out of doubt, We have directly asked the rest of the operators What do you think of Vodafone’s decision and if it plans to take action in this regard.

Telefónica and Orange have refused to make any statement in this regard. Let us remember, however, that Telefónica has long included in its contracts a clause that would allow them to modify the price that charge for their services based on the increase in the CPI (although they have not accepted it until now). O2, for example, sets it as we see in this excerpt:

O2 Contract

Since the most mobile group, they tell us that “to this day, we continue as we are and we have not made any decision on that at this time”. Something similar has told us DIGI: “we maintain the commitment with our clients to always offer them the best possible proposal at the best possible price”. Neither of them has come to assess the Vodafone measure.

Who has been “wet” has been fine work. Its General Director, Javier Herranz, is clear: “Our policy is to maintain a competitive rate offer, in that sense, we will try to continue with this position without impacting the IPC to the client”.

Javier Herranz, General Director of Finetwork: “Our policy is to maintain a competitive rate offer, and in that sense, we will try to continue with this positioning without impacting the IPC to the client”

And what is Finetwork doing to alleviate the situation? According to Javier Herranz, “be more efficient in all processes so as not to impact increases to our current and future customers.” Still, he understands Vodafone’s decision: “Large groups have higher fixed cost structures and need to take other measures,” he tells us.

It’s hard to predict what will be the trend in 2023, but according to market sources, it would not be surprising if much of the sector ended up adjusting its prices according to the CPI to face the loss of income, the enormous inflation and the necessary investments in fiber and 5G. We’ll see what comes next year.

A few days ago, we learned of Vodafone’s decision to link your rates to the average year-over-year CPI starting next…

A few days ago, we learned of Vodafone’s decision to link your rates to the average year-over-year CPI starting next…

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