Ofcom Pushes Fair Pricing on UK Mobile and Handset Bundles

The UK communications and media (broadband, mobile, TV etc.) regulator has today set out a range of new measures that are intended to tackle bundles of both mobile handsets and tariffs (airtime contracts) together, which often continue to charge consumers for the handset even once the minimum contract term has ended.

At present most mobile operators will offer consumers 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 given how much some of the top-end Smartphones can cost (£1,000+).

Bundles like this tend to cost a lot and that becomes more of an issue if, at the end of your contract term, the operator keeps taking the same monthly payments as before (i.e. you’ve already paid off the cost of the handset but the operator is still asking you to pay for it). At this point a wise consumer would switch to a SIM-Only option or change plan / operator but not everybody does that.

Some mobile operators, such as O2, already offer ways to resolve this but others do not. Ofcom estimates that around 1.4 million UK consumers are out of their contract and still paying instalments towards a handset that has already been paid off (here). The regulator equates this to consumers paying £182 million a year more than they should.

Ofcom has thus been consulting upon ways to tackle this and today they’ve proposed several related measures. Sadly not all operators want to play ball.

Summary of the Key Changes

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 (split contracts have risen from 4% in 2014 to 16% in 2018).

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 today we have proposed a new rule to ban mobile operators from linking split contracts where the handset contract is longer than 24 months.

Reduced mobile bills

Several mobile operators have voluntarily committed to reduce customers’ bills by making several changes to how they handle airtime contracts. The only major mobile operator NOT to sign-up is Three UK, which “refused to apply any discount to its out-of-contract customers” and Ofcom thus fears they will “continue to overpay and will not receive similar protections if they stay on their current deal.”

* Virgin Mobile (Virgin Media) 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.

Apparently all of these discounts will come into effect by February 2020 and that should complement Ofcom’s existing measures, such as the recently introduced Text-to-Switch (Auto-Switching) system (here) and their new end-of-contract notification service that’s due to go live on 15th February next year (here).

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.”

In addition, Ofcom said they will launch a new “switching campaign” this autumn that will “highlight the benefits of switching mobile and broadband provider” (they kind of already do this a bit for broadband ISPs). Separately they’re continuing to review broadband pricing (e.g. loyalty penalty) and looking at how they could tweak the rules in order to better protect vulnerable consumers (we expect the outcome later in 2019).