Many mobile phone contracts have the price of the handset built into them. Rather than pay up-front for the latest smartphone, you can spread that cost out over several years. However, what happens when you have paid the full value of your phone off, but the amount you're paying each month doesn't fall?
This might seem like an unusual situation, but Citizens Advice has found that it actually happens a lot in the UK. The organisation discovered that three out of the nation's four largest network providers were continuing to bill customers extra for their phones even after the full amount had already been paid.
Gillian Guy, chief executive of Citizens Advice, said: “Some of the largest mobile phone providers are routinely overcharging their loyal customers. Mobile phones are now an essential part of modern life, but the way that the cost of handsets are hidden within some mobile phone contracts gives phone providers a way to exploit their customers.”
Vodafone, EE and Three all have this policy, whereby a customer's bill does not get reduced once the phone has been paid off. For owners of one of the industry's most high-end devices, the costs can end up being significant.
For example, if you were to opt for a contract with Vodafone that allowed you to pay off a high-range phone (defined by Citizens Advice as one worth £600 or more) then, on average, you will end up paying an extra £38 each month once it's paid off. On EE or Three you'd be paying an additional £34 on average.
Across all handsets, the average that consumers will be overcharged once they've paid off their phone is £22. However, this is nowhere near the maximum amount you could be paying; if you have a 256GB iPhone 8, for example, it could cost you an extra £46 each month on average.
So how many of us are affected by this? According to Citizens Advice, 36 per cent of people remain in their contract for some amount of time after their fixed-deal period is up. Just over half of these – 19 per cent of people in total – are still in the same contract for more than six months after the term ends.
This is even worse for the older generation, with 23 per cent of over-65s remaining in their contract for more than a year after the fixed term has ended. Only 13 per cent of under-65s stayed in a contract for this length of time.
On average, continuing to pay for your handset for six months after the fixed term would cost you £132, while an extra year on your contract would be £264. For the aforementioned iPhone 8, a year would set you back more than double this, at an astonishing £552.
Ms Guy added: “Phone providers must now make sure that any customers staying in a contract past the end of a fixed deal have their monthly bill reduced to reflect the cost of the handset.
“Providers could make it much easier for consumers to compare prices by separating out the cost of handsets from the cost of services like data and minutes for all contracts, that way it would be much clearer what they’re paying for. It’s important that Ofcom and the government are prepared to protect consumers by making providers take these steps, if they do not do so themselves.”