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Summary

On July 22, 2019, Ofcom launched a new consultation on a range of measures to allow customers to make informed decisions when taking out pay-monthly mobile contracts and ensure they are treated fairly. The consultation will run until September 2019. Ofcom has set out a package of measures that include discounts by most mobile operators for their out-of-contract bundled customers; point-of-sale transparency measures, which would require providers to set out the price at which the handset and airtime elements of bundled contracts can be bought separately; and a proposed prohibition of linked split contracts over 24 months in length (and associated amendments to the General Conditions).

Ofcom's proposed prohibition of linked split contracts over 24 months should encourage more customers to switch providers

On July 22, 2019, Ofcom launched a new consultation on consumer protection measures for pay-monthly mobile phone contracts. The measures include encouraging greater transparency, fairer contract terms, and a range of price cuts by operators.Pay-monthly contracts make up 70% of the UK's 79 million mobile subscriptions. Within this market, there are principally three types of contract option available to customers: bundled, split (where there are separate contracts for the handset and airtime), and SIM-only contracts. It is important that customers are able to make informed choices when purchasing one of these mobile phone contracts and are treated fairly.

There are concerns about many mobile phone customers, who pay for their mobile handset and airtime together in a bundled contract, continuing to pay the same price after the end of their minimum contract period when they could save money on a SIM-only deal. Approximately 2 million bundled customers are currently out of contract and, of those, 1.4 million would save money if they switched to a cheaper SIM-only deal. It is encouraging that more and more customers are moving to SIM-only deals and split contracts because this should mean the number of customers paying too much should decline over time.

The new EU framework, the European Electronic Communications Code (EECC), includesrules to protect customers but does not give national regulators the power to obligate providers to move customers to fairer default tariffs. Despite this, as a result of Ofcom's review, several operators have made their own commitments to reduce bills for out-of-contract customers by February 2020.

  • Virgin Mobile will move its out-of-contract customers to the equivalent 30-day SIM-only deal.

  • EE, Tesco, and Vodafone will reduce the monthly price paid by out-of-contract customers.

  • O2 (for its direct customers) will reduce the monthly price of its out-of-contract customers to the equivalent 30-day airtime-only deal. It has not committed to providing a discount to customers it acquires through indirect channels such as Carphone Warehouse, which are the vast majority. However, it has committed to enter into discussions with these indirect channels.

  • Three has decided not to apply any discount to its affected customers.

These new commitments are in addition to Ofcom's previously announced rules that state that mobile phone customers must be told when their contract is coming to an end, and shown the best deals available, including SIM-only deals. This should come into force in February 2020, far in advance of the December 2020 deadline set out by the EECC. The EU Framework also requires customers to be told the price of the handset and cost of airtime separately before they sign up to a bundled mobile contract. Ofcom will implement this in the UK as part of a broader consultation, which will also look at introducing a rule to prevent customers from being tied into long split contracts by applying a 24-month limit to linked split contracts. This should encourage more customers to find the best deal and switch providers. Currently, some split contracts are linked in a way that could deter customers from switching; for example, a 12-month airtime contract linked to a longer handset contract of up to 36 months.

The regulator has more steps planned for later in 2019. Ofcom will be consulting on a new transparency measure for bundled contracts. It will make proposals to amend its General Conditions, which will come into force by December 2020. Ofcom will also be monitoring companies' practices closely against the "Fairness for Customers" commitments, which all major providers have signed up to, and Ofcom plans to publish a progress report on these commitments in 2020.

Appendix

Further reading

UK (Country Regulation Overview), GLB005-000111 (December 2018)

Regulatory Issues and Approaches to Switching Bundles, GLB005-000006 (November 2017)

Author

Sarah McBride, Analyst, Regulation

sarah.mcbride@ovum.com

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