A major class action against Vodafone, BT, Virgin Media O2, and Three may proceed following a Competition Appeal Tribunal (CAT) hearing in April. While a final ruling is probably years away, if the claims succeed, the potential damages could reshape investment, expansion, and shareholder return plans.
What is the Issue?
The claim, led by consumer rights advocate Justin Gutmann, alleges that the UK’s largest mobile operators overcharged millions of customers by continuing to bill them for handsets after the minimum term of their contracts ended. The case centers on “Combined Handset and Airtime” (CHA) contracts, where monthly bills included both the cost of the handset and the mobile service. The legal argument is that operators failed to reduce charges once customers had effectively paid off the cost of their phones, thereby overcharging them. The plaintiffs estimate that the alleged overcharging affected 28 million customers, resulting in total damages of approximately £3.28 billion.
What’s at stake for Vodafone, BT, Virgin Media O2 and Three?
These are the four defendants named in the collective proceedings (CPO), also known as collective actions. According to their financial disclosures, none of the companies have set aside provisions for this legal risk, viewing it as either too uncertain to quantify or too remote in timing. However, this position could change if the Tribunal certifies the CPO.
In the absence of such provisions, any eventual liability would need to be absorbed directly, potentially impacting share buyback programmes, expansion strategies, or dividend payouts. Below is a breakdown of the estimated liability each company faces, and how a potential judgment could affect their financial standing:
- Vodafone faces the largest exposure, with up to £1.4 billion in potential liability. This would represent around 45% of its FY24 operating profit and over 60% of its free cash flow. A payout of this scale would likely delay share buybacks, reduce short-term expansion capacity in high-growth areas like Africa and IoT, and put pressure on capital allocation decisions.
- BT Group, through its mobile arm EE, could be liable for up to £1.1 billion. That would consume more than 90% of BT’s FY24 pre-tax profit and nearly 85% of its free cash flow. The company has just rebased its dividend and is entering a phase of strategic transformation. A hit of this magnitude could force delays in its fibre rollout or digital upgrades, and possibly even prompt a rethink of capital returns to shareholders.
- Virgin Media O2 (VMED O2 UK Ltd), jointly owned by Liberty Global and Telefónica, faces an estimated £256 million in liability. While materially smaller, the amount represents about 40% of its estimated free cash flow. VMED O2 is investing heavily in fibre and 5G coverage, and a payout would likely slow its aggressive expansion plans, particularly in rural connectivity and wholesale services.
- Three UK would also face around £500 million in liability. Its smaller scale relative to the other MNOs means that this liability could represent a meaningful share of profits or expansion capital.
Who is favoured?
The Tribunal has yet to decide whether to certify the claim, but recent case law (such as Merricks v Mastercard) has set a more claimant-friendly precedent. Therefore, certification of the class is a likely outcome.
However, certification is no guarantee of ultimate success. In fact, many of the class actions that has been certified in the past ended up in settlements or drawn-out legal battles yet to be resolved.
Defendants, particularly Vodafone, presented strong limitation defenses, arguing that media coverage from as early as 2015 should have alerted consumers to the alleged overcharging. The Tribunal may still carve out certain claims or limit the scope based on the age of the claims or class definition challenges. In other words, while certification is likely, the ultimate result of the claim isn’t clear, and if damages are paid, probably will be less than the initial amount calculated.
What’s the timeline?
The CPO application was formally filed in 2023. The Tribunal held its three-day certification hearing from 31 March to 2 April 2025. A ruling on whether to allow the claim to proceed is expected between June and August 2025. If certified, a full trial would likely not take place before 2026.
Note for investors
While the collective action represents a material legal risk, especially for Vodafone and BT, all three main defendants are financially robust and capable of absorbing the payouts. However, such liabilities would significantly impact short-term cash flow, capex plans, and possibly dividend policies. Investors should view the risk as manageable but potentially value-relevant if the claim proceeds to trial and succeeds. The legal process is still in early stages, but the certification ruling mid-year will be a critical milestone to watch as companies may then decide to set up provisions to cover legal risks.
