Mobile Phone Networks

This guide looks at 16 mobile phone networks. The Big Four (O2, EE, Three, Vodafone) have their own mobile network infrastructure. The other 12 operators are called ‘Virtual Mobile Network Operators’ (VMNO) as they provide services by ‘piggy-backing’ on existing infrastructure.

Apart from the very top and bottom of the score table, there is not much to separate most of the networks. Ecotalk and Honest Mobile both scored well, whilst three brands – Three, Tesco and ASDA – languish at the bottom of the table. The remaining 11 networks are separated by only a few points.

The major issue in the industry is tax avoidance, of which much more below.

We have focused on Vodafone, once synonymous with tax avoidance, and Lycamobile. They appear near the top of the score table, but this position belies their still dubious tax practices.

What’s changed?

In one sense, not a whole lot has changed since we last looked at mobile phone networks two years ago. The Big Four (EE, O2, Vodafone, Three) continue to dominate the market overall and EE still has the biggest individual market share (23%).

But look further down into the minor placings and there have been some changes and rearranging:

• The People’s Operator went bust in February 2019.
• TalkTalk mobile remains in name only: they are no longer accepting new mobile customers and instead are offering existing mobile or broadband customers access to special deals with their network partner, O2.
• Your Co-op (previously The Phone Co-op) is now owned by the Midcounties Co-operative, which means its Ethiscore drops from 12 to 5.5.
• There are two new virtual operators on the scene: Sky and Ecotalk. The latter is run by renewable energy supplier, Ecotricity, hence the ‘eco’ in the name.

In our rating system, companies that have a licensing relationship (such as piggy-backing) with another company will lose marks in categories where the partner company has received major criticisms.

For example, Telefónica (which owns O2) lost whole marks under Habitats and Resources, Human Rights, Workers’ Rights, Political Activities, and Anti-Social Finance. Therefore, the networks using O2 to provide mobile services (Lycamobile, TalkTalk, Tesco) lost an additional half mark in each of these categories.

In the same way, companies using the EE network lost additional half marks under Pollution & Toxics, Human Rights, Arms & Military Supply, Political Activities and Anti-Social Finance.

Who piggybacks on whom?

The table below shows the networks used by each VMNO and what effect this relationship had on the network’s Ethiscore.

Tax avoidance

Vodafone

Not long ago, Vodafone was synonymous with tax avoidance. In 2010, it was accused of making a ‘sweetheart deal’ when it handed over £1.2 billion to settle a row with HMRC over its Luxembourg arm.

In 2014, UK Uncut protestors targeted Vodafone for paying no corporation tax since 2011. In 2014, it made a profit of £59.4 billion in the UK but paid no UK corporation tax for the third year in a row. The finger was pointed at the company’s Luxembourg-based subsidiary, Vodafone Procurement Company (VPC), which the company claimed to use for centrally managing strategic procurement and to ‘leverage scale and achieve better prices and terms’. Critics pointed out that the company “funnelled revenues through the country to avoid tax in Britain”.

Vodafone’s initial response to these accusations was to complain that the protesters didn’t understand tax, that the company was a major investor in the UK (such as in 3G and 4G infrastructure, from which Vodafone directly benefited) and a major source of direct and indirect employment.

The following year, however, Vodafone became the first multinational to publish country-by-country financial data and it now provides narrative explanations for subsidiaries based in jurisdictions on Ethical Consumer’s list of tax havens, including the Cayman Islands, Jersey, The Netherlands, and Luxembourg.

This means it now receives our best rating for ‘likely use of tax avoidance strategies’. Our rating is based on a company’s policy on its operations in tax havens. It needs to have a narrative as to why it has operations there. It also needs country-by-country reporting which provides revenue, tax, investment and employment data for each country that a company operates in so you can see, to a certain extent, what’s happening in each country.

However, this doesn’t mean that Vodafone is now paying corporation tax.

It’s just more transparent and better at explaining its tax affairs. In its ‘Tax and our total contribution to public finances 2018’ report Vodafone explained why it paid “little or no UK corporation tax” in 2018 despite making a profit of £168 million.

Vodafone says it had to deduct in excess of €500 million for the interest costs on its UK debt from £10 billion it borrowed to pay the UK government for its 3G and 4G licenses. It then had tax relief on the €1.3 billion it spent in 2018 on building and upgrading its networks and services. “The UK remains an expensive and highly competitive country in which to do business; it is also one of our least-profitable markets anywhere in the world”, claims Vodafone.

The jury is still out on whether the leopard has changed its spots. It still receives third party criticisms for potential tax avoidance practices. For example, a report in December last year by Shareholders for Change analysed Vodafone’s tax report for 2018 and found that there was a potential for profit shifting to low-tax jurisdiction countries.

“The largest share of Vodafone’s profits (38%) are generated in two conduit [low tax] jurisdictions, Luxembourg and Malta, where the group has just 325 employees (out of a total of 108,271 employees worldwide).

Whilst Vodafone should be applauded for being a leader in tax transparency, the data shows how this multinational has chosen to structure itself to minimise taxation in countries in which it operates. This has likely resulted in significant revenue losses for the UK (and other countries’) tax authorities. This is particularly detrimental for developing countries, as they rely on corporation tax receipts more heavily than developed countries do.”

In May 2018, the company was challenging the State of India in an Investor-State Dispute Settlement (ISDS) over a $1.8 billion tax bill. Also known as corporate courts, ISDSs are international courts through which corporations can sue states for loss of future profits if laws are changed.

ISDSs usually meet secretly, are presided over by corporate lawyers and provide no right to appeal once a verdict has been made. The dispute dated back to 2007 when Vodafone acquired India-based telecommunications company Hutchison Essar Ltd. through a Cayman Islands-based subsidiary. Indian tax authorities claimed the underlying assets of the shares transferred derived value in India and slapped Vodafone with a 120 billion rupee ($1.8 billion) tax bill. At the time of writing the outcome of this was still pending.

Lycamobile

Lycamobile was embroiled in a £26 million tax dispute in 2017 with HMRC over VAT. Lycamobile’s accounts also revealed that it paid £72 million to another part of Subaskaran’s business network, based in the lowtax jurisdiction of Madeira, which the company said was for phone airtime.

In 2012, it had paid no corporation tax for three years. The HMRC is currently trying to fine Lycamobile £8.2 million for the tax it thinks the firm owes “for the financial years 2012 and 2013 combined.” Lycamobile has set aside £10.5 million.

Our Tax Avoidance rating

We rated the networks in the Anti-Social Finance column for their likely use of tax avoidance strategies. Only a quarter of them got our best rating, with half of the companies covered getting our worst rating.

Best – Ecotalk, Honest Mobile, Lycamobile, Your Co-op Mobile (previously The Phone Co-op), Vodafone

Middle – O2, Giffgaff, TalkTalk

Worst – Virgin, BT, EE, Plusnet, ASDA, Sky, Three, Tesco Vodafone and Lycamobile still get third-party criticisms for tax avoidance and therefore a full mark in the AntiSocial Finance column.