Customers of EE, Three and Vodafone who choose to stay on the same contract after the cost of their smartphone has been paid off are still being charged as if they still owed money, according to a report from consumer watchdog charity Citizens Advice.
The problem occurs because most customers who take out pay-monthly plans do not buy the device outright at the start of the contract, and the operator factors the cost of the phone into their monthly bill, usually over 24 months. At the end of this period, customers will generally get the option to upgrade to a new contract and a more up-to-date device, or switch to another operator.
However, Citizens Advice found that around 36% will generally choose to remain with their operator, and it is these users that will continue to be charged for mobile hardware they own outright.
The study found loyal users were paying an extra £22 per month on average on top of their voice and data plans. For high-end smartphones, such as the iPhone 7 or Samsung Galaxy S8, this could be as much as £38 per month, while for the recently-announced iPhone 8, it could be more like £46 per month.
“Some of the largest mobile phone providers are routinely overcharging their loyal customers,” said Citizens Advice chief executive Gillian Guy.
“Mobile phones are now an essential part of modern life, but the way the cost of handsets are hidden in some mobile phone contracts gives phone providers a way to exploit their customers. It is clearly unfair that some phone providers are charging loyal customers for handsets they have already paid for.”
Citizens Advice found the over-65s were the most likely group to be affected, as younger people tend to swap phones at the earliest opportunity. Almost a quarter of people in the over-65 bracket remained in their contract for more than 12 months past the end of the fixed deal period.
The charity called for operators to take immediate steps to proactively reduce customer bills when they remain in a contract past the end of the fixed deal. It also suggested they should display the cost of the plan and the device separately from one another in advertising and at the point of sale, to give consumers more insight and clarity about the cost of their mobile service.
“Phone providers must now make sure any customers staying in a contract past the end of a fixed deal have their monthly bill reduced to reflect the cost of the handset,” he said. “Providers could make it much easier for consumers to compare prices by separating out the cost of handsets from the cost of services like data and minutes for all contracts. That way, it would be much clearer what they’re paying for.
“It’s important Ofcom and the government are prepared to protect consumers by making providers take these steps if they do not do so themselves,” said Guy.
A spokesperson for Three said: “Whenever a new customer signs with us, we make the end-date of the contract term very clear. We also let them know that they can contact us at any time to discuss the range of options available should they wish to change their plan with us.
“We encourage all Three customers to contact us if they would like to change their plan at the end of their fixed term deal. They can also check how much time they have left on their plan via the My3 app. We appreciate any feedback to help us improve our processes and are exploring new ways to ensure our customers can get the most out of their mobile phones at a competitive price.”
“We send our customers regular updates about their options before and after they reach the end of their contract, and the vast majority of our customers upgrade to a new phone or move to a SIM-only plan near the end of their contract,” said a spokesperson for EE.
“All of our customers can move to a SIM-only plan as early as 45 days before the end of their contract, and our customers can also take advantage of the annual upgrades included in our 4GEE Max plans, allowing our customers to upgrade their device every 12 months at no additional cost,” they added.
No easy task
Although there will be inevitable pressure arising from the Citizens Advice report for operators to adjust their billing processes to end the practice altogether, this may be no easy task.
According to one source with knowledge of the industry, it would require extensive retraining of customer service agents to Financial Conduct Authority (FCA) legal compliance standards to be able to implement the needed changes. While operators could go down this path, he suggested, there were probably easier options in the short-term to address the issue.
EE’s spokesperson added: “Separating phone and tariff doesn’t always represent the best deal for consumers, it can sometimes result in them paying more, and EE customers have the flexibility to choose the tariff and upfront phone cost that’s right for them.”
However, O2 has already taken some steps to end this practice. “O2 Refresh separates airtime and device costs, giving customers complete transparency and control over their monthly bill. We’d like to see the other operators review their position and follow our lead,” said chief marketing officer Nina Bibby.
An Ofcom spokesperson said the regulator shared Citizens Advice’s concern that some customers buying a handset bundled with their service plan were still paying for it after the contract ended.
“We’re already considering this issue as part of a wider project to help people shop around and secure the right deals,” said Ofcom.
The regulator is currently considering industry and stakeholder responses to a consultation on how to increase consumer engagement in the comms industry, and is expected to publish new proposals arising from this early in 2018.