Ofcom has today set out proposals to ensure fairer, more transparent prices for mobile customers who pay for handsets and airtime within the same contract.
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. Our 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 receive 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). We estimate that 1.5 million consumers are in this situation, and are still paying instalments towards a handset that they have already paid off.
We are 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. This means customers cannot tell how much they are paying for the different parts of their deal.
We think this is unacceptable. Consumers should be able to clearly 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.
We have been working with mobile providers to explore a solution to this problem, which could be put in place quickly without the need for formal regulation. However, the providers have not offered sufficient or firm commitments. So, we are now setting out proposals for regulation to address how people are sold combined airtime and handset deals.
Today we are consulting on two possible options.
First, achievinggreater transparency.This would include requiring mobile firms to break down the cost of the different parts of the mobile package a customer is purchasing. This 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.
We 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 by doing so. 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 tariffsat the end of the minimum contract period.
This means 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 their minimum contract 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.
Today’s consultation looks at some of the 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. We have set out ways those risks might be mitigated, such as giving customers the option to opt out.
Alternatively, providers could reduce the monthly cost of the contract to reflect the fact that the handset has been paid off.
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.”
In considering each option, we will balance the need for customers to make informed choices with the need to avoid unintended consequences – such as increased prices in other areas. Our aim is to ensure that, overall, mobile customers get the best possible deal.
We are seeking comments on our proposals from consumer groups, the public, industry and other interested parties by 7 November. We will then look at the responses and evidence before publishing detailed proposals in the new year.
Today’s consultation is part of Ofcom’s wider programme of work to ensure that mobile, landline and broadband customers get a fair deal. In recent months we have concluded work in areas such as easier switching between mobile contracts, and automatic compensation for landline and broadband customers when things go wrong.