The telecoms regulator Ofcom said 1.5 million customers who buy these bundled contracts – where the cost of the handset and airtime is combined – continue to pay for their phone once it’s already been paid off.

Ofcom said when mobile customers sign-up for a bundled contract, providers are not transparent about the respective costs of the handset and the airtime – so customers cannot tell how much they are paying for the different parts of their deal.

It said this was “unacceptable” and is consulting on solutions to the problem.

One option is requiring mobile firms to break down the cost of the different parts of the mobile package a customer is purchasing at the point of sale.

A second option is for mobile firms to automatically move customers to a ‘default’ deal when their minimum contract period ends, so they stop paying for their handset, and instead pay only for airtime.

Lindsey Fussell, Ofcom consumer group director, said: “Mobile customers should get the best possible deal. We’re concerned that people are not told, or cannot tell, exactly what they are paying for.

“So we are extending our work on behalf of mobile customers to ensure that handset charges are clear and fair – not just when they enter a contract, but also when their minimum period is up.”

Four million people overcharged

Research published last week by Citizens Advice revealed four million people in the UK have been charged for phones they already own, paying a total of £490m extra on their last contracts. The charity called for EE, Three and Vodafone to stop this practice.

Citizens Advice chief executive Gillian Guy said: “It’s heartening that Ofcom has now acted to help fix the problem.

“This move has the potential to make a real difference to consumers. However, while greater transparency around pricing would be a step in the right direction, what people really want is not to be charged for products they already own.

“Companies should automatically stop charging people for handsets once they’ve paid them off. Of Ofcom’s proposed solutions, this is the only one that would make sure people aren’t unfairly overcharged.”

The regulator said it will publish further detailed proposals in the new year.