Ofcom has sought agreement from Virgin Mobile, Tesco Mobile, O2, Vodafone and EE to take varying measures to reduce customers’ bills when their contract ends.

Many mobile customers pay for both their handset and airtime bundled together in a single contract. But thousands end up paying more than they need to once their initial contract ends and, in effect, carry on paying for their handset long after it’s already been paid for.

These customers are collectively paying about £182m a year more than they would if they switched to a new deal.

Both Virgin Mobile and O2 have agreed to move their out-of-contract customers to the equivalent 30-day SIM-only deal, while Tesco Mobile will reduce the monthly charges of out-of-contract customers to the best available airtime tariff.

Vodafone and EE will both reduce their prices for customers out of contract for more than three months, with both companies confirming the level of this discount before the end of the year.

However, Three has refused to apply any discount to its out-of-contract customers. This means Three customers risk paying over the odds if they fail to act at the end of their contract.

New rules for split contracts

The regulator also plans to ban “linked split contracts” lasting 24 months or more and says mobile customers must be told cost of buying handsets and airtime separately.

Ofcom found that mobile customers are increasingly turning to “split” contracts – with separate contracts for the handset and airtime. This enables users to upgrade their handset without it affecting their airtime contact.

But Ofcom is concerned that longer split contracts could make it harder for customers to switch, if they have to pay off their handset first. So it has proposed a new rule to ban mobile operators from linking split contracts where the handset contract is longer than 24 months.

A fair deal for mobile customers

Lindsey Fussell, Ofcom’s consumer group director, said: “Our research reveals a complex mobile market, where not everyone is getting a fair deal. So we’re introducing a range of measures to increase fairness for mobile customers, while ensuring we don’t leave existing customers worse off.

“All the major mobile companies – except Three – will also be reducing bills for millions of customers who are past their initial contract period.”

Richard Neudegg, head of regulation at uSwitch.com, said: “The depth of analysis conducted by Ofcom highlights the range of consequences faced by mobiles customers falling out of contract. However, the regulator has uncovered some disappointingly poor practices from mobile providers which must be addressed. It is clearly not acceptable that 1.4 million out-of-contract bundled handset customers are paying £182m a year more than they should.

“Last month, all the big providers signed up to new fairness principles, so it’s a positive step to see Ofcom has already been able to secure voluntary commitments from them to sort this problem for the majority of out-of-contract bundled customers. These steps should resolve the situation for eight in 10 of these customers. However, it should be noted that Three has not yet been willing to make the same commitment as its competitors, and it risks making headlines for all the wrong reasons.”