Despite the UK having the highest mobile ownership in the world, Truphone predicts 1m people who already own handsets will receive a mobile phone for Christmas.
The company said up to 75% of shoppers will end up buying a phone that "won't do all the things" the most up to date handsets can, such as downloading music, watching TV and accessing social networking sites.
Truphone said it was a "disaster" that less than 25% of mobile phones sold in the UK were smartphones, despite the company claiming that the models are widely available at subsidised prices.
According to Truphone, shoppers should be prepared to spend more on a mobile phone to avoid being tied into an 18 month contract for a model that it claims could be obsolete within a few months.
The company said it accepted many people would buy standard pay-as-you-go models, but that others would be tied to £30 a month contracts for a phone that could potentially not have all of the functions they wanted to use it for.
James Tagg, chief executive of Truphone, said: "Our advice is clear, get yourself one of the latest cool breeds of smartphone. You wouldn't buy a TV that isn't HD ready these days, so don't buy a phone that isn't internet ready.
"Remind yourself that you'll almost inevitably want to use it to do cool things over the 18 months you'll be paying for it."
This article was first published on brandrepublic.com