Ofcom has set out proposals to ensure fairer, more transparent prices for mobile customers who pay for handsets and airtime within the same contract. The regulator says that buying a handset with a mobile contract is a popular way for people to receive a new phone, as it allows them to spread the cost over many months.
Research suggests around two in three pay-monthly mobile customers are on a contract that ‘bundles’ the cost of a handset with the cost of using the phone, known as airtime. While most customers are receiving good value for money, Ofcom is concerned that a significant minority continue to pay the same price after the end of their minimum contract period (often 18 or 24 months). It is estimated that 1.5 million consumers are in this situation, and still paying instalments towards a handset that many have already paid off.

Ofcom is also concerned that, when a mobile customer signs up for a bundled contract, providers are not transparent about the respective costs of the handset and the airtime – so customers cannot tell how much they are paying for the different parts of their deal. Ofcom thinks this is unacceptable. Consumers should be able clearly to identify the goods and services they are paying for, so they can make an informed decision about what to buy – and what to do when the minimum term of their contract ends.

Ofcom has been working with providers to explore a solution to this problem, which could be implemented quickly without the need for formal regulation. However, mobile companies have not offered sufficient or firm commitments. The regulator is setting out proposals for regulation to address how people are sold combined airtime and handset deals.

The regulator is considering two possible options.

First, achieving greater transparency. This would include requiring mobile firms to break down the cost of the different parts of the mobile package a customer is purchasing. That information should be provided clearly and transparently, at the point of sale, and again at the end of the minimum contract period. This builds on our existing plans to require telecoms providers to send customers alerts when their initial contract is coming to an end.

It is are also examining what further information should be provided when the initial period expires. For example, providers might be required to explain to customers which specific ‘SIM-only’ deals they could move to while keeping their handset, and how much they could save. This would allow people to compare packages and make an informed decision about what to do next.

A second option is to require providers automatically to introduce fairer tariffs at the end of the minimum contract period. Under this option, mobile firms would move customers to a different ‘default’ deal when their minimum contract period ends, so they stop paying for their handset, and instead pay only for airtime. This could be implemented in a number of ways.

For example, providers could move customers automatically onto an existing, 30-day SIM-only deal at the end of the minimum period. Because available deals may not include the same features and services as the customer’s previous tariff, providers could match customers to the closest deal.

The consultation examines some challenges to this approach, including customers objecting to having their service changed without explicit consent; potentially losing certain services; or experiencing unexpectedly high bills if the new deal fails to include the same allowances.

Lindsey Fussell, Ofcom Consumer Group Director, said: “Mobile customers should get the best possible deal. We’re concerned that people are not told, or cannot tell, exactly what they are paying for. So we are extending our work on behalf of mobile customers to ensure that handset charges are clear and fair – not just when they enter a contract, but also when their minimum period is up.”

Responding to the announcement Citizens Advice Gillian Guy, Chief Executive said “Citizens Advice recently revealed that an estimated 4 million people in the UK have been charged for phones they already own. It’s heartening that Ofcom has now acted to help fix the problem. This move has the potential to make a real difference to consumers. However, while greater transparency around pricing would be a step in the right direction, what people really want is not to be charged for products they already own.”

“Companies should automatically stop charging people for handsets once they’ve paid them off. Of Ofcom’s proposed solutions, this is the only one that would make sure people aren’t unfairly overcharged.”