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Mobile Operators Sued for £3bn Due to UK Airtime Plan Overcharging

Friday, Dec 8th, 2023 (7:22 am) - Score 2,560
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Mobile network operators including EE (BT), Vodafone, Three UK and O2 (VMO2) are facing a class action claim worth “at least” £3.285bn from consumer rights champion Justin Gutmann and the law firm Charles Lyndon, which accuses them of historically overcharging for mobile handsets beyond the end of their contractual term.

Mobile operators typically offer consumers a choice of either taking a SIM-Only style 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 an airtime plan is that it enables consumers to spread the cost of their handset and mobile plan across the contract term (12-24 months), which is useful given how much some of the top-end mobiles cost.

NOTE: Back in 2018 Ofcom estimated that c.1.4 million UK consumers were out of their contract and still paying instalments towards a handset that had already been paid off (here).

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 the same rental as before). At this point, a wise consumer would of course just switch to a SIM-Only option or change plan / operator, but not everybody does that (some people just forget or don’t realise).

Some mobile operators, such as O2, have long offered contracts that resolve this, while others like EE, Three UK and Vodafone were slower to adapt, but they too do now offer split contracts (i.e. separate contracts for the handset and airtime). However, as O2 has frequently pointed out this year (here and here), the plans their rivals sell aren’t always the default and can sometimes be hard to find.

The Loyalty Penalty Claim follows a rare super-complaint from Citizens Advice to the Competition and Markets Authority (CMA) in September 2018. The CMA found that: “We do not consider that providers should continue to charge customers the same rate once they have effectively paid off their handsets at the end of the minimum contract period. This is unfair and must be stopped.” They also added that customers “rightly feel ripped off, let down and frustrated“.

Ofcom has previously tried to tackle this with voluntary agreements in 2019 (here), as well as via the 2020 introduction of a new End-of-Contract Notifications (ECN) system and some smaller consumer protection measures in 2021 (here), but they’ve never gone as far as to ban the practice.

The New Class Action Case

The former Head of Research and Insight at the UK’s statutory consumer champion Citizens Advice, Justin Gutmann, has now joined forces with law firm Charles Lyndon to launch class action proceedings against Vodafone, EE, Three, and O2 (the “Loyalty Penalty Claim“). This alleges the companies have been “abusing their dominant positions” by charging a “loyalty penalty,” in which long-standing customers were overcharged for handsets beyond the end of their contractual term.

Mr Gutmann alleges the operators have overcharged on up to 28.2 million contracts and, as a result, is seeking damages of at least £3.285 billion. If successful, someone who held a contract with just one of the mobile operators could receive as much as £1,823. Many consumers are expected to have claims against more than one mobile operator and so could, hypothetically, receive even more compensation.

NOTE: The class actions have been filed in the Competition Appeal Tribunal (CAT) in London, United Kingdom. This is an opt-out claim, which means qualifying consumers will be automatically included on the claim at no cost, unless they specifically opt-out.

The estimated loss across all mobile network operators since 2007 has been estimated below, all figures are “including simple interest“. If distributed evenly, contract holders from the mobile network operators listed below are estimated to receive the following amounts:

➤ Vodafone – up to £1,823
➤ EE (BT Group Plc) – up to £1,101
➤ Three (Hutchinson 3G UK Limited) – up to £1,817
➤ O2 (Telefonica UK Limited) – up to £1,178

Justin Gutmann said:

“I’m launching this class action because I believe these four mobile phone companies have systematically exploited millions of loyal customers across the UK through loyalty penalties – taking over £3 billion out of the pockets of hard working people and their families. These companies kept taking advantage of customers despite the financial crisis of 2008, Covid and now the cost of living crisis. It’s time they were held to account.”

If our claim is successful, it will finally stop these firms from taking advantage of their loyal customers and stop the immoral practice of loyalty penalties.”

The BBC clearly had an early view of the announcement, as they’d already been able to gather some comments from the operators. A spokesperson for EE said they “strongly disagree with the speculative claim being brought against us“, while Vodafone said they “don’t yet have sufficient detail for our legal team to assess” and Three UK declined to comment (possibly because in 2019 Ofcom said they were the only major operator that “refused to apply any discount to its out-of-contract customers“).

As for O2, which should be in the best position of the bunch given their stance on such plans, the operator said that they haven’t yet been contacted about the claim and “are proud to have been the first provider to have launched split contracts a decade ago which automatically and fully reduce customers’ bills once they’ve paid off their handset.” The claim itself does of course go back even further than those changes, assuming the court allows the case to track back that far.

Big legal cases like this tend to take a very long time to reach any kind of conclusion (think years rather than months) and will also have to grapple with various complex issues, such as with respect to how the law approaches consumer choice and ignorance of contract details. Mobile operators also have freedom to set retail pricing however they so choose, albeit often restricted by the realities of natural competition (i.e. making your service too expensive can be counter-productive).

At this point it’s worth remarking that the separate Collective Action on Land Lines (CALL) has been trying to raise a different class action case against BT for the past few years (here), which relates to the alleged overcharging of 2.3 million landline-only phone customers. But the trial for that will only now finally begin in January 2024, which helps to highlight just how long this process could take, assuming it gets that far.

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Mark-Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and .
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Comments
13 Responses
  1. Avatar photo Kris Lord says:

    So phone contracts have to go down after the minimum term to account for the hardware provided being paid off….

    Yes broadband contracts go up significantly after the minimum term….

    1. Mark-Jackson Mark Jackson says:

      You may be confusing general mid-contract and post-discount price rises, which impact both broadband and mobile operators, with this rather specific class action against excess bundle charges for handsets.

  2. Avatar photo Big Dave says:

    If you can afford the upfront cost then it’s probably better to buy your own phone and go SIM only anyway. It probably works out cheaper in the long run and you are not restricted to the phones your network chooses to supply. I bought a Xiaomi Poco 4X Pro earlier this year after doing some research and it is probably the best phone I’ve had.

    1. Avatar photo Mike says:

      Every phone contract I have had in the past has been from a decent to substantial saving over what I could get the phone separate along with the type of plan from any operator. There were always definitely options out there where that wasn’t the case, but I always went with the plenty of options that were.

      For example my current phone was just under £450 to buy new when I got my contract, from anywhere. The total price I will pay for that same phone with unlimited texts, calls, and data will come to £550. So the full unlimited plan is going to cost me £4.16 per month. No fair usage policy, tethering allowed, 5g included without speed restrictions etc.

  3. Avatar photo Ivor says:

    feels a bit of a spurious claim, especially as Ofcom requires telcos to notify customers of end of contract, potential deals, “could be cheaper elsewhere”. If people choose to stay on beyond that, isn’t it a matter of personal responsibility?

    1. Mark-Jackson Mark Jackson says:

      The ECN is fairly recent, so it only covers part of the period.

    2. Avatar photo Mike says:

      That notice doesn’t point out that you you will continue being charged for hardware that has been paid off does it?

      People might decide to stay, and do so thinking that it could be cheaper somewhere else. But it will be under the misleading impression that what they are paying isn’t objectively unfair, and fraud in all but name. And instead will think that it just might not be the cheapest. Very different concepts.

  4. Avatar photo Mozzauk says:

    The only winners from this are Mr Gutmann and also the lawyers who will make millions if it ever settles which I doubt it will

    Just because people dont read the terms when signing up is always someone else’s fault..

  5. Avatar photo DD says:

    Whilst I’m not a fan of CPI/RPI price increases and believe those terms should be regulated, in this case, I think there has to be a balance between treating people like adults versus protecting them from unfair consumer practices. It used to be, if upgrading early with Vodafone for example, the contract termination fee wouldn’t include VAT for services not received (not sure what the policy on this is now) plus there always has been early upgrade windows etc. If a consumer doesn’t want to keep an eye on when their deal runs out, and think about if they are paying too much (by working out cost of the handset versus how much their 24 month contract is worth) then that is down to the consumer surely? I’m not saying the networks are right for doing it, but it’s a 2-way street!

    1. Avatar photo Jazzy says:

      Not necessarily. My brother in law is disabled and vulnerable. He went into the Vodafone shop in Livingston after his 24 months was up, wanting to go SIM only and knowing he used less than 1GB a month data, they signed him into an 18 month SIM package at £21/month with 100GB data. Their village only has good Vodafone signal, 02 is weak and EE/Three non existent.

      When I realised 3 months later it was too late. He’s now with Lebara (using Vodafone signal) for £4.99/month

      It’s really not a two way street. They have a responsibility to be ethical

    2. Avatar photo DD says:

      I completely agree with you – there is a principle in Equity Law known as the unconscionable contract which I think should apply to examples like the one you describe.

  6. Avatar photo Jazzy says:

    I realised a couple of years ago that contracts were a mugs game. Since then we’ve bought 2 x iPhones direct from Apple on their 24 month plans and paid both off in just over 16 months (each) by overpaying

    I have a £8/month GiffGaff sim in mine, as does my husband and we can swap networks when we like

  7. Avatar photo Michael V says:

    Three, from previous experience send a letter and an email. It’s a customer’s responsibility to take action. If there is someone who is not able to deal with things like this or disabled or vulnerable then the should be a family member of friend to assist with these. I get it’s not always easy. It’s always worth making note of your contract end date. Maybe there should be an option to hand an end of contract letter sent to another person who can help a family member name the changes needed.
    Yes the Operators should be supportive but there isn’t always a SIM plan to match what one has. How far are these people actually wanting the Operators to go?

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