New measures to increase fairness for mobile customers
Ofcom yesterday set out a range of measures to increase fairness for mobile customers – including greater transparency, fairer contract terms and a range of price cuts by operators.
- Mobile customers must be told cost of buying handsets and airtime separately
- Plans to ban ‘linked split contracts’ over 24 months
- Mobile companies to cut bills for millions of out-of-contract ‘bundled’ customers
Many mobile customers pay for both their handset and its usage (or ‘airtime’) bundled together in a single contract.
We have 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.
What we have considered
We previously proposed options including greater transparency around handset pricing; and moving customers automatically onto a default tariff such as an equivalent ‘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. Ofcom has analysed the market in unprecedented detail, analysing the prices paid by all two million mobile customers on bundled deals who are out of contract. We have found that more than a quarter would actually pay more if they switched to an equivalent ‘SIM-only’ deal.
New protections for mobile customers
But we remain concerned about the 1.4 million ‘out-of-contract’ customers, 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 are taking a range of steps to increase fairness in the market.
New transparency rules. Under the new EU rules, which must be implemented by the end of next year, mobile customers entering into a bundled contract will be told the cost of buying 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 are concerned that longer split contracts could make it harder for customers to switch, if they have to pay off their handset first. So 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 wishes to switch to a different network, from this month they can leave their current provider with a simple text message.
Mobile bills reduced
Finally, we have also challenged industry to take action. Yesterday we announced commitments from a number of the UK’s biggest mobile companies to reduce customers’ bills.
- Virgin Mobile will move its out-of-contract customers to the equivalent 30-day SIM-only deal.
- Tesco Mobile will reduce the monthly charges of out-of-contract customers who are overpaying to the best available airtime tariff.
- O2 will reduce the monthly price of its out-of-contract customers to the equivalent 30-day SIM-only deal. This will apply to its direct customers only, but O2 will discuss options for customers who take out O2 contracts with third-party retailers.
- Vodafone and EE will reduce their prices for customers out of contract for more than three months. Both companies will confirm the level of this discount before the end of the year. We expect their discount to take into account the level of savings available if customers switched to a comparable SIM-only tariff.
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.
All of the discounts will come into effect by February 2020.
Lindsey Fussell, Ofcom’s Consumer Group Director, yesterday 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.”
Switching campaign: in the autumn, Ofcom will launch a consumer information campaign to highlight the benefits of switching mobile and broadband provider.
Broadband pricing: later this year, we will report on our review of how companies set their broadband prices, and why some customers pay more than others – particularly those who may find themselves in vulnerable circumstances.
Notes To Editors
- Bundled contracts have fallen as a proportion of pay-monthly contracts from 74% in 2014 to just 46% in 2019. In this period, 12-month SIM-only contracts have risen from 15% to 34%.
- We also raised concerns that, while split contracts bring benefits in increased flexibility and pricing transparency, some split contracts could tie customers into excessively long contracts with providers – in some cases up to 36 months.
- These 1.4 million customers are overpaying, on average, just under £11 per month more than if they switched to a comparable SIM-only deal. This translates into a total figure of around £182m a year. 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.
- Split contracts have quadrupled in the last four years, from 4% in 2014 to 16% in 2018.
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