1 in 3 mobile customers still being ripped off, claims Which?

Consumer watchdog Which? is calling for an end to the £182 million mobile phone overpayments rip-off, as it reveals one in three ‘bundled’ customers are still being charged the full price of their contract EVEN AFTER paying off the cost of their handset – leaving some potentially overpaying by more than £400 a year.

Last year, Ofcom secured voluntary commitments from most of the big players who offer bundled deals to reduce prices for out-of-contract customers, to reflect that they should no longer be paying a charge for their handset. These came into effect in February 2020.

However, providers have taken different approaches as to how these commitments are applied. The consumer watchdog found that around a third (36%) of customers whose contracts have ended in the last two months are still overpaying on their bill.

The worst affected were customers of Three, which decided not to apply any discount to bundled customers when their contracts end. 

Around four in 10 (43%) Three customers whose contracts had ended in the last six months claimed they saw no price drop at the end of the term – meaning they were in effect continuing to pay for a handset that has already been paid off. 

Based on current contract costs, that could leave a Three customer with a Samsung S20 5G phone paying £37 a month – or £444 a year – more than the provider’s equivalent airtime deal for their bundle.

For EE customers it was two in five (40%) that saw no drop in price, and for Vodafone, it was three in 10 (31%). Discounts applied by EE and Vodafone only come into effect three months after customers have gone out-of-contract, which means that some of these customers may not have yet seen a change in their monthly costs.

In both cases, this approach could leave customers unnecessarily paying the full price of their contract for three months after it ends. Even when the discounts are applied, they are unlikely to be sufficient to offset the overpayments.

A Vodafone customer with an iPhone 11 could still be left paying £32 a month – or £384 a year – more than they need to for an equivalent airtime deal after the provider’s £5 per month discount is applied. Meanwhile, an EE customer with a Samsung S20 5G phone could still be overpaying by £26.20 a month – equivalent to £314 a year – even with the 10 per cent discount applied by the firm.

Out-of-contract bundled customers on O2 (direct customers), Tesco Mobile and Virgin Mobile are less likely to face such hefty overpayments, as these providers told customers they would see their bills reduced to the equivalent 30-day, or best available, airtime deal. 

Alongside the commitments to reduce the overpayments trap, in February this year Ofcom also gave all providers 40 days to start sending end-of-contract notifications for customers reaching the end of their minimum term.

These messages help ensure customers know their contract is coming to an end and inform them of options available to them. Those with bundled mobile contracts should also be told about at least one SIM-only deal. Providers told Which? that they have sent end-of-contract notifications to all customers as they are required to, but that some notifications may have been missed.

When Which? asked why customers had stayed with their provider beyond the minimum term, a quarter (26%) of people stated they had not got around to changing contract or switching providers, a fifth (20%) said that they were happy or didn’t want to change their phone, one in five (18%) thought they were getting a good deal and another one in five (18%) said they trust their provider.

While Which? welcomes the commitments made by some providers, which have improved the situation of many out-of-contract bundled customers who are overpaying, it believes that EE and Vodafone should have gone further to ensure that customers are not overpaying when their bundled contract comes to an end. 

Which? is now calling for the regulator to review whether mobile providers are truly treating their customers fairly when it comes to mobile contracts which currently could still leave many people out of pocket.

Says Natalie Hitchins, Head of Home Products and Services at Which?:

“While some mobile firms have taken action to end overpayments, our research suggests that others could do a lot more to ensure that customers are not being exposed to rip-off charges.

“Ofcom should ensure that all providers are treating their customers fairly and have taken enough steps to stop people overpaying. In the meantime, it is really important that customers don’t wait. If you think you might be out of contract or overpaying, check your phone bills to see if you can save money with a SIM-only deal or with an upgrade to a new phone.”

Survey

• Opinium, on behalf of Which?, surveyed 4,006 UK adults in July, including 856 people who have had a mobile phone contract expire in the last 12 months.

• In the past, most mobile contract customers would continue to be charged the same price even when the handset had been paid off unless they changed contracts, meaning customers could end up significantly overpaying on their mobile phone bill. 

• The Vodafone and EE discounts only come into effect three months after customers have gone out-of-contract, this means that some customers have not yet seen a change in their monthly costs.

• The vast majority of O2 bundled customers purchased their contracts indirectly through third parties (particularly Carphone Warehouse). O2’s discount didn’t initially apply to these customers, but it has since extended it to these customers and this came into effect from May.

• Ofcom’s analysis of out-of-contract mobile customers on bundled contracts, published in July 2019, found that around 1.4 million of the 2 million out-of-contract bundled customers could save money if they switched to a cheaper SIM only deal. Ofcom found that those customers are collectively overpaying around £182m per year.

 

Mobile phone provider responses

EE

An EE spokesperson said:

“It is entirely wrong to suggest that we aren’t fulfilling our commitment to Ofcom’s fairness measures. Before the mandatory introduction of end-of-contract notifications in February 2020 we already led the industry by contacting mobile customers a number of times before their contract ended, as well as afterwards, clearly informing them of their options.

“Since May 2020, we automatically give handset customers a 10% discount off their monthly bills once they have been out-of-contract for three months. We ensure customers are fully informed about their contract pricing and send reminders to encourage them to choose the right deal for them when their contract ends.

“The out-of-contract payment assumptions in this report are misleading as it is fairer to compare out-of-contract pricing with a 30 day SIM only deal, as that’s the equivalent notice an out-of-contract customer gives. This closer comparison means that on average a 30 day SIM only deal is approximately £5 more a month than an out-of-contract customer pays for an equivalent service.”

Three

A Three spokesperson said:  

“Three has some of the lowest prices and unmatched propositions on the market. We’ve always put customers first and continue to do so.

 “Applying an arbitrary discount to tariffs will not effectively tackle what really matters – helping customers to find a contract which is both best-suited to their needs and priced fairly is what we do.

 “We allow our customers to choose what they do when they reach the end of their fixed term commitment. To ensure that they can make an informed choice, we send all customers a notification before the end of their contract which shows them what they are paying for now, what an equivalent SIM only tariff is and also a SIM only tariff based on their actual usage. 

“Our goal is to allow customers to pick the right sized tariff for them, but most importantly give them the freedom to choose.  Our research shows that this has been a highly effective way to increase customer engagement: the significant majority of our handset customers have chosen to upgrade after receiving an end of contract notification this year.

 “As the leading campaigner for easy switching for the mobile industry, we are working hard to create a market where customers are engaged and happy, by pushing for easier switching, all handsets to be unlocked, end-of-contract notifications and best tariff advice.”

Vodafone declined to comment

 

 

Table shows potential overpayment for ‘big four’ customers after contract end, based on current contract deals for two popular smartphones

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