3 of the largest mobile phone providers are overcharging loyal customers

Sticking with your plan can mean paying for a phone you’ve already bought

Last week Citizens Advice released analysis showing how 3 of the largest mobile networks routinely overcharge their customers. 6 out of 10 people in the UK are on a contract which includes a phone or tablet. If that includes you, you could end up paying hundreds of pounds more than necessary.

Currently, most providers don’t tell you how much of your monthly bill goes towards the phone and how much is paying for the calls or data. But by comparing handset inclusive deals with equivalent SIM-only contracts, we’ve calculated that for an average handset, people pay around £22 a month towards their phone. At the end of a 2 year contract, you’re free to move plans, or to switch providers. Or, if you’re happy with your handset and plan, you can just stay and keep everything the same. But there’s a catch.

You’re no longer paying for the handset — but your price stays the same

If you’re with Three, EE or Vodafone (who collectively account for 59% of the retail mobile market), the price you’re charged each month won’t change.

You will continue to pay for your handset each month, even though in theory you already own it. And this continues indefinitely, unless you actively choose to change your plan.

Our research found that 36% of mobile handset customers stayed on their previous contract after the 24 month fixed period. On average, people stayed on their contract for an extra 7 months.

Even taking into account the proportion of the market that doesn’t charge this penalty, people with a low or mid range handset could still be paying £111 more than they should.

It’s not enough to tell people to switch

We want all providers to reduce their customers’ bills when they stay in the same contract past the end of a fixed deal, to reflect the cost of the handset being paid off. It should not be people’s responsibility to prevent themselves being overcharged, and there are several reasons many people may not take immediate action to change their contract by themselves.

1. People don’t always have time to switch

Choosing a mobile phone contract is a difficult decision. There are around 7 million tariffs to choose from, and each provider presents their deals slightly differently. This leaves people with a huge number of decisions to make.

How many minutes and texts? How much data? Which handset? Is a larger upfront cost better than higher monthly payments?

Added to this, a mobile phone is an expensive, high stakes purchase. Whatever choice people make, they’ll have to live with it for 24 months.

And that’s a long time. Direct debit payments become part of a monthly budget, and people forget that their plan will eventually end. Considering how complex it can be to shop around, it’s not surprising many people don’t do it the instant they get the chance.

2. Providers don’t tell you how much money you can save

We don’t think of these contracts as paying for the phone — because providers don’t present it that way. If there is no separation between the phone payment and the plan payment, there’s no reason to think that you’re still being charged for something you’ve already paid for.

Phone companies do send messages to tell people their contract is up — but these usually tell people that they are now able to ‘upgrade’ to a new handset. If someone is happy with the phone they’ve got (or waiting for the new version to be released), there’s no reason for them to realise they are losing money by not acting straight away.

3. Switching won’t necessarily save people money

Providers have entire teams dedicated to retaining customers. When people ring up to switch or change contracts, they often end up being upsold instead. And this is reflected in the language we use. We’re encouraged to upgrade, even though a 2 year old phone might still work perfectly fine.

Previous research by Citizens Advice shows that mobile phone firms are selling people expensive contracts they don’t need. On average, mystery shoppers were sold contracts worth 130% more than the most appropriate tariff.

Mobile handset contracts need to change

Smartphones are an increasingly important part of modern society. And spreading the cost over 24 months is often the only way people can afford one. It’s not fair that people are penalised for that.

Mobile phone companies need stop routinely overcharging their customers. They should also separate out the cost of a handset from the cost of mobile phone services. This would make it clearer when the handset has been paid for. It would make it easier to compare the price of contracts. And it would be easier for people to make the right decision.