Mobile customers will benefit from clearer and fairer contracts and price cuts by their operators, as part of measures set out by Ofcom today.
Many mobile customers pay for both their handset and its usage (or ‘airtime’) bundled together in a single contract.
We’ve been concerned that these customers could be paying more than they need to once they pass their initial contract. So, last year we began a review of the market.
We previously proposed options including clearer handset pricing and moving customers automatically onto a default tariff such as a ‘SIM-only’ deal when their initial contract has passed.
Since then, new EU laws have been passed. They provide a package of measures designed to address many of the concerns we have identified. But they fall short of giving Ofcom the legal power to impose default tariffs, ruling out such a measure.
New research also shows that default tariffs could leave many customers worse off. We analysed the market in detail, looking at the prices paid by all two million mobile customers on bundled deals who are out of contract.
We found nearly a third of these would actually pay more if they switched to an equivalent ‘SIM-only’ deal.
But we’re concerned about the 1.4 million customers who are out of contract and who would save money if they switched to a cheaper SIM-only deal. These customers are collectively paying around £182m a year more than they would if they switched to a new deal. So, we’re taking a range of steps to increase fairness in the market.
These 1.4 million customers are overpaying, on average, just under £11 each per month more than if they switched to a comparable SIM-only deal. This translates into a total figure of around £182m a year across all these customers. However, given most of these customers are out of contract for less than a year, the average annual amount each of them could save is £74.
New transparency rules. Under the new EU rules, which will be in place by the end of next year, mobile customers choosing a bundled contract will be told what the cost would be if they bought the handset and airtime separately. We want to introduce this for UK customers as quickly as possible, and will set out our plans in the coming months.
New contract rules. Mobile customers are increasingly turning to ‘split’ contracts – with separate contracts for the handset and airtime – so they can afford an expensive mobile phone in instalments. We’re concerned that longer split contracts could make it harder for customers to switch, if they have to pay off their handset first. So, today we have proposed a new rule to ban mobile operators from linking split contracts where the handset contract is longer than 24 months.
Alerts when your contract is up. Under Ofcom rules announced in May, mobile companies must tell customers when their contract is coming to an end, and explain their best deal including a SIM-only tariff. And if a customer wants to switch to a different network, they can now leave their current provider with a simple text message.
Finally, we have also challenged industry to take action. Today we are announcing commitments from a number of the UK’s biggest mobile companies to reduce customers’ bills.
All of the discounts will come into effect by February next year.
Three is the only major provider that has refused to apply any discount to its out-of-contract customers. As a result, these customers will continue to overpay and will not receive similar protections if they stay on their current deal.
Lindsey Fussell, Ofcom’s Consumer Group Director, said: “Our research reveals a complex mobile market, where not everyone is getting a fair deal. So, we’re introducing a range of measures to increase fairness for mobile customers, while ensuring we don’t leave existing customers worse off.
“All the major mobile companies – except Three – will also be reducing bills for millions of customers who are past their initial contract period.”