Ofcom Clamps Down on Pricing for UK Mobile and Handset Bundles

The UK telecoms regulator, Ofcom, has today proposed a number of measures that will seek to tackle concerns over airtime packages (e.g. bundling the cost of a Smartphone and Mobile plan together), which can result in consumers continuing to pay the same monthly charge even after their contract has ended.

At present most Mobile Network Operators (e.g. EE, Three UK, Vodafone and O2) will offer new customers a choice of either taking a SIM-Only plan (i.e. you just pay for the text/data/calls or mobile broadband plan of your choice) or a bundle with a mobile handset (airtime plan).

The advantage of a bundle is that it enables consumers to spread the cost of their handset and mobile plan across the contract term (12-24 months), which is particularly useful when you have companies (e.g. Apple) selling new Smartphones for well into the obscenely expensive £1,000+ territory.

Naturally consumers will pay more for such bundles and this can become an issue when you reach the end of your contract term, particularly if you fail to switch your mobile plan to a SIM-Only option and find that the operator is still charging you exactly the same amount as before. Some operators, such as O2, already offer ways to solve this.

Lindsey Fussell, Ofcom’s 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.”

Ofcom’s research suggests that 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 and they state that “most customers are receiving good value for money.” Despite this the regulator estimates that 1.5 million consumers are out of their contract and still paying instalments towards a handset that many have already paid off.

On top of that the regulator believes that mobile operators are “not transparent” enough about the respective costs of the handset and airtime, which is something they view as being “unacceptable” because customers cannot tell how much they are paying for the different parts of their deal.

Margot James MP, UK Minister for Digital, said:

“It is just not right for consumers to be charged for a product they have already bought. Mobile providers must make it clearer when a customer has paid off their handset and easier to switch to a cheaper deal. We’ve strengthened Ofcom’s powers to better protect consumers, and will continue to work with Citizens Advice and others on a fairer and more transparent system that helps people save money.”

The regulator claims that it has been trying to work with major operators on a voluntary solution to the issue, although sadly “mobile companies have not offered sufficient or firm commitments” and so Ofcom has instead decided to pursue a change via formal regulation. As a result they’ve produced two options for consultation.

Option 1 – Greater Transparency

This would require operators 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 their existing plans to require telecoms providers to send customers alerts when their initial contract is coming to an end (here).

Providers might also 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.

Option 2 – Force Fair Tariffs at the End of a Contract

The toughest and most controversial option would require providers to automatically introduce “fairer tariffs” at the end of the minimum contract period (e.g. moving them to a SIM-Only plan without the handset charges).

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 second option is tricky, not least because customers might object to having their service changed without explicit consent, particularly if they lose features in the process or if the new package results in unexpectedly high bills due to a difference in the included allowances. Ofcom suggests that giving customers an option to opt-out could help to mitigate this, but such things are easily overlooked by subscribers.

Alternatively, providers could do the obvious thing and reduce the monthly cost of the contract to reflect the fact that the handset may have effectively been paid off. One problem with this is that over the course of a long contract term the operator may change their plans, prices and features, which means that what existed when they first joined might no longer be available. Time for a snap poll.

Ofcom’s consultation will now remain open for responses until 7th November 2018.

Ofcom’s Fair Airtime Bundles Consultation
https://www.ofcom.org.uk/../consumers-communications-markets-mobile-handsets