Mobile providers could be forced to automatically move customers to cheaper SIM-only plans once they reach the minimum term of any contract which includes a handset, under proposals unveiled by Ofcom.
The regulator said it was concerned that an estimated 1.5 million customers continued to pay the original price after their minimum contract period ended, meaning they were still paying instalments towards a handset that many have already paid off.
Ofcom said it was consulting on requiring mobile firms to clearly and transparently break down the cost of different parts of the mobile package and what further information should be given to customers when the initial period expires.
A second option was to require providers to automatically introduce fairer tariffs at the end of the minimum contract period.
Under this option, providers could automatically move customers on to an existing 30-day SIM-only deal at the end of the minimum period.
Alternatively, providers could reduce the monthly cost of the contract to reflect the fact the handset may have effectively been paid off, Ofcom said.
The regulator said its research suggested around two in three pay-monthly mobile customers were on a contract that bundles the cost of a handset with the cost of using the phone, known as airtime.
It said it was “unacceptable” that providers were not transparent about the respective costs of the handset and the airtime, meaning customers could not tell how much they were paying for the different parts of their deal.
Citizens Advice warned last week that an estimated four million UK mobile phone users have been charged £490 million for handsets they already own.
The charity said EE, Three and Vodafone routinely continued to charge customers for handsets after they had paid them off in full.
Ofcom consumer group director Lindsey Fussell 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.”
Citizens Advice chief executive Gillian Guy said: “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.”
Digital minister Margot James said: “It is just not right for consumers to be charged for a product they have already bought.
“Mobile providers must make it clearer when a customer has paid off their handset and easier to switch to a cheaper deal.”
Ofcom is seeking comments on the proposals from consumer groups, the public, industry and other interested parties by November 7.