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

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.

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.

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.