The 12 month contract is dead

Not so long ago, you could wander into your local mobile phone store, sign your life away for a year and leave with a shiny new mobile phone and an airtime deal.

Well, you can still do that today, and often leave with more than just a free phone, with networks and retailers bundling everything from Nintendo Wii’s to laptops alongside contract phones and broadband dongles in an effort to persuade consumers and business customers to commit to a minimum contract.

However, the length of most minimum contracts has started to creep up over the last two years, partly as mobile networks try to impose the longer contracts that are the norm in the US on their UK and European businesses, and also as a means to improve average revenue per user (ARPU) and reduce churn.

With most 12 month contracts relegated to either the most basic of handsets or hidden away to be used as a customer retention offer of last resort, the trend in the UK has been towards 18 and 24 months minimum commitments, particularly for business customers where 24 month data contracts are already commonplace.

According to a report published today by Mobile, the Spanish-owned mobile operator O2 has now become the first UK mobile phone network to drop 12 month deals altogether, from both its direct sales operation and via independent resellers such as Carphone Warehouse.

The decision is backed up by data from research house GfK, which reveals that 18-month contracts now account for 84 per cent of all contract sales in the UK, while 24 month contracts account for 10 per cent, having risen as high as 17 per cent in March.

Other networks are not yet ready to throw in the towel however, with 3 still offering 12 months deals with free handsets on 12 month and even six month deals, T-Mobile is still offering 12-month contracts and free phones on its Combi plan, Vodafone offers a multitude of 12-months deals from £25 to £80 a month, while Orange has a small number of 12 month plans tucked away on its website.

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