Millions of Brits are overpaying for their mobile phone. But incoming regulations promise to make end-of-contract charges fairer and end sharp practices for good. Here’s what you need to know.
Mobile phone customers will get a clearer picture of contract costs and will no longer unknowingly pay out for phones they’ve already paid-off, under incoming rules proposed by the telecoms regulator.
The proposed regulations, which are intended to make handset contracts fairer, come as it emerged that Britons are overpaying by £182 million every year for their phone contracts.
So what exactly are the new rules? And how will they affect you? Read on, as we take a close look and answer all your questions.
The forthcoming regulations break down into three distinct areas. We’ll take a look at each in turn…
1) Clearer breakdown of contract costs
In future, mobile phone networks must give customers a more explicit, clearer breakdown of the costs that make up their phone contract.
That means you’ll be told how much of your monthly payment goes towards paying off your phone and how much is for your monthly allowance.
The regulations also propose that customers will be told at the point of sale what the cost would be if they bought the phone and an identical SIM-only deal separately.
As you may know, it’s actually much cheaper to buy a phone SIM-free and then get a SIM-only deal than it is to buy the same phone with the same allowance on a standard phone-and-SIM contract. Often to the tune of hundreds of pounds.
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2) Curbs on out-of-contract overpayments
Out-of-contract customers who’ve paid off the phone part of their contract will be automatically switched to a cheaper SIM-only deal.
With the exception of Three, most of the big UK networks have outlined plans for how they’ll apply to their customers.
We’ll take a closer look at exactly how further down.
Heretofore, it's been the case that customers could feasibly go on overpaying for years until they contact their network or decide to upgrade to a new phone.
Ofcom is also acting to ensure that customers will also get alerts when their contract is about to end.
At this point, providers will be obliged to alert customers about their best deals for handsets and SIMs.
3) Action on split contracts
Split contracts, such as O2 Refresh or Sky Swap contracts, divide your contract into two: a payment that covers your handset and another payment that covers your monthly allowances.
They’re intended to make it easier for customers to upgrade to a new phone mid-way through their contract, provided they pay off the handset part of their contract.
Under Ofcom’s new guidance, split contracts that are longer than 24 months could be banned.
This is because the regulator perceives that these lengthy contracts actually make it more difficult for consumers to switch to a new provider, if they’re forced to pay off the remaining cost of their phone to do so.
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What are providers doing to cut out-of-contract costs?
From February 2020, networks will automatically transfer out-of-contract customers to cheaper deals.
Vodafone and EE will reduce prices for customers who’ve been out of contract for more than three months by an as-yet-unspecified amount.
The discount will likely be in line with a SIM-only deal that offers the same allowances the customer had on their existing contract.
Tesco Mobile will transfer customers who are out of contract to its ‘best available airtime tariff’.
Virgin Mobile and O2 will cut customers’ costs to an equivalent 30-day SIM-only deal.
What about Three?
At the time of writing, Three has yet to commit to cutting costs for out-of-contract customers. So if you’re a Three customer, you’ll likely continue to pay for your handset even after you’ve paid it off.
Three said it’s opposed to Ofcom’s regulations because they will encourage customers to stick with their current provider, rather than looking around for a better deal with another network.
A Three UK spokesperson said: "We want consumers to engage with the mobile market, switching providers that don’t work for them and finding the best deals to suit their needs.
"We do not believe Ofcom’s proposal will encourage engagement amongst consumers.
"Instead, it risks creating a stagnant market whereby consumers are not encouraged to shop around for the best deal at the end of their minimum term."
What’s our take?
Rob Baillie, mobile comms expert at Compare My Mobile, said: “After the Text-to-Switch announcement today spells more good news for mobile consumers, with Ofcom increasing pressure on networks to lower costs for customers.
“Increased transparency will allow those looking for a mobile contract to see the cost of buying the handset and airtime separately, ensuring that they can make the right decision for themselves.
This will encourage customers to shop around for the best deal, and what they actually get for their money will be a lot clearer.
"It should also stop networks from charging high prices for unnecessary extras.
“The news also stops customers who are out of contract from being ripped off – whether intentionally or not – by their providers.
"The regulator has come down hard on providers by trying to get them to reduce their mobile bills, with almost all major networks obliging.
“Noticeably, Three has refused to offer any discounts to its out-of-contract customers, which will be sure to anger users of the network, who already receive fewer loyalty perks than other brands.”