Mobile Phone Contracts

Tuesday 16th January 2018 Westminster Hall

15:58

[Sir David Crausby (in the Chair)]

We will start the debate, although it may well be interrupted very quickly by a Division.

[Patricia Gibson (North Ayrshire and Arran) (SNP)]

I beg to move,

That this House has considered mobile phone contracts.

A mobile phone has pretty much become a necessity for all of us. Even though we might often wish that we did not have one, we all rely on them to a certain extent. It is just the modern way that we live our lives. I am sure that, like me, the Minister is deeply concerned to hear of the report from Citizens Advice that too many loyal mobile phone customers are being ripped off—I use the term advisedly—by their providers. The research by Citizens Advice showed that people buying a phone through their contract pay an average of £22 a month towards their mobile phone handset. Many people take out a mobile phone contract that includes the cost of a new handset in the overall price of a fixed-term deal, the majority of which are for two years. At the end of that deal, consumers have the option to stay with their network on the same contract, to take out a new contract, or to move to another provider.

However, 36% of mobile handset customers stay on their previous contract after the fixed 24-month period. On average, they stay for an extra seven months. If they are customers with one of the bigger mobile phone providers that dominate the market, however, the chances are that the price they are charged each month will not change. That means that consumers continue to be charged for their handsets, even though they have already paid for them during their two-year contract.

Most providers do not tell the customer how much of their monthly bill goes towards their handset, and how much pays for data and calls.

16:00

Sitting suspended for Divisions in the House.

16:45

On resuming—

[Mr Philip Hollobone in the Chair]

[Mr Philip Hollobone (in the Chair)]

Order. The sitting is resumed, and the debate may continue until 5.15 pm.

[Patricia Gibson]

Thank you, Mr Hollobone. As I was saying before the Division bell sounded, the fact is that most providers do not tell the customer how much of their monthly bill goes towards the mobile handset and how much is paying for their calls and data. Citizens Advice has discovered that three of the four largest mobile providers continue to charge customers for a handset after the cost of the handset has already been paid during the term of the fixed deal. That means that loyal customers who choose to stay on the same phone plan after their fixed deal ends see no reduction in their bills. They continue to pay, unwittingly, for a handset for which they have already paid.

Who is most likely to be caught up in this so-called loyalty trap? Those aged over 65 are most likely to be stung, with 23% of over 65s with a handset-inclusive mobile phone contract staying in their contract for more than 12 months past the end of their fixed deal period, compared with only 13% of people aged under 65. Worse still, if someone does not switch they cannot tell how much their handset is costing them, and whether they are getting a good deal or not. Indeed, the total cost of a handset as part of a bundled contract can vary considerably, even among plans offered by the same provider. In some cases, the price difference can be as much as £400. Of the 706 bundled contracts analysed by Citizens Advice, 74% were more expensive than buying the same handset up front and using it with a SIM-only contract, which is quite astonishing.

Three, one of the largest mobile phone providers, has been in touch with me. That company recognises that the way the market is currently organised means that mobile bills lack transparency and are difficult for consumers to comprehend, which in turn leads to them paying more than they should—that is, more than they need to—for their mobile phones.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Lady on securing the debate on an issue that affects my constituency and all others. Does she agree that the thirst for the latest phones means that many people buy themselves out of a contract at a massive financial cost, and that we—or perhaps the Minister—should look at whether the way in which the industry works out the buy-out clause for contracts can be made fairer, and not to the advantage of the mobile companies?

[Patricia Gibson]

There is, indeed, a range of issues with mobile phone contracts. The real concern is when a consumer is paying for something for which they have already paid, but the hon. Gentleman is absolutely right that mobile contracts need to be seriously looked at.

For consumers, the way to get transparency is to separate out costs so that they can see clearly what they are paying for. In any other industry, that would not be controversial. Some people have pointed out that regulations are an obstacle in the way of separating out those costs because they would require the mobile phone companies to become regulated creditors under the Financial Conduct Authority. Some argue that that would be bureaucratic, burdensome and complex for the mobile phone companies, as they would have to comply with the Consumer Credit Act 1974. However, that need not be the case, since there is a well-established precedent, of which I am sure the Minister is aware; exemptions from full regulation under the Consumer Credit Act are given to appropriate sectors, especially for loans with an annual percentage rate of zero.

The Financial Services and Markets Act 2000 created an exemption from the Consumer Credit Act regulations for providers of 0% APR loans of up to four months. That was raised to 12 months—the current limit in 2015—through a statutory instrument, to allow insurance companies to offer monthly payments for annual plans. Perhaps the Minister will consider raising that limit further to 24 months, to allow mobile phone operators to offer separate mobile handset financing. That would make bills more transparent for consumers, since handset and service contracts would then be separated. Given that it would be prohibitively expensive to ask consumers to pay off their handsets in 12 months, raising the current 12-month limit to a 24-month exemption in the Consumer Credit Act would offer a way forward. It has been done successfully in countries such as Germany and Australia, as well as other countries, so there is no reason why it could not be done here.

O2 has told me that it is the only operator to separate the cost of mobile phones from the airtime on consumer bills and that when a consumer has paid off his or her mobile phone, all charges for it are stopped. That leads me to wonder why one such company can manage such transparency in its billing but others do not seem able to. I am sure the Minister is wondering that as well.

We must make it as easy as possible for those companies who engage in this blatant, unfair and unjust overcharging of customers to stop doing so and remove all the so-called obstacles and hiding places. In no other industry would such blatant ripping-off of the customer be tolerated; it should not be tolerated in the mobile phone industry either. Indeed, it undermines consumer confidence and trust in the entire industry, which is unfair to those players in the industry who play fair by the consumer.

Too many consumers in too many sectors endure a “loyalty penalty” and mobile phone charges are symptomatic of a wider problem. Indeed, in the wider telecoms market, people experience a persistent and ingrained level of detriment. We should be grateful for the sterling work of Citizens Advice, who I pay tribute to today, as its research has uncovered the fact that people experience 27 million problems with their mobile, broadband or TV services per year and those problems cost people £4.2 billion a year in wasted time and money. It is simply not good enough.

As the Minister will be aware, we currently have very powerful voices in the telecoms industry, with no independent voice speaking up for consumers. The telecoms industry has vast resources to expend on lobbying the regulator. It is time for the consumer’s voice to be heard.

The Minister will also be very aware that in their 2017 manifesto, the UK Government made a commitment to make telecoms billing fairer and easier to understand for consumers, including clarifying when the cost of a mobile handset has been paid off by the customer. That is not difficult to do. It can be done by statutory instrument, as I have said.

In a letter of 17 November to me on this issue, the former Minister of State for Digital told me that he hopes

“that providers will now take the initiative by clearly separating the cost of handset and tariff in mobile contracts”.

In Ofcom’s response to me of 8 November, it said that it wanted to help people to

“shop around and secure the right deals”.

But unless costs are separated out and mobile operators are forced down that path, consumers cannot and will not know what deals are the best value for money. We cannot rely on the goodwill of the mobile phone operators, because that has not worked. Action is needed and I have offered a way forward, which I urge the Minister to adopt.

The responses from the former Minister for Digital and Ofcom, although well-meaning, do not go far enough. In fact, the responses give me cause for concern—I am a bit alarmed—because they both, in their different ways, suggest that the mobile phone companies can decide if and when they take action on this matter. I would argue that the Government and the regulator must act urgently to protect consumers from being ripped off. When someone unwittingly pays for the same product twice, make no mistake: that person is being ripped off.

With inflation running high, as it has done for a number of years, and with a continuing squeeze on living standards, it is only right and proper that consumers are treated fairly and are able to see more easily what they are paying for, so that they can properly compare prices. I urge the Minister to set out a clear timetable to implement what she and her Government have publicly said they believe. That can be done very soon, very cleanly and very quickly, by statutory instrument. It is needed so that there can be no excuse or hiding place for mobile companies that continue to charge mobile phone customers for something that they have already paid for. It is time to redress the imbalance between the powerful voice of industry and the weak and too-often ignored voice of the consumer. It really is time to act.

16:54

[The Minister of State, Department for Digital, Culture, Media and Sport (Margot James)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for North Ayrshire and Arran (Patricia Gibson) on securing the debate to highlight this important issue and on her passionate speech, which I listened to with great interest.

I am delighted to have responsibility for championing the interests of digital consumers as part of my new role at the Department for Digital, Culture, Media and Sport as the Minister for digital and creative industries. In my previous role, I had responsibility for small business and consumers, which included retail energy markets and competition law, so I have some experience of the type of issues consumers in this market face, as well as of some of the potential solutions.

The hon. Lady mentioned the Citizens Advice research in her speech, and I pay tribute to Citizens Advice, with whom I worked a great deal in my former job. It does a marvellous job and has been pursuing this issue with the Government, Ofcom and the mobile phone operators over the last 12 months. I have reviewed its research with interest.

Ofcom estimates that about 1 million people continue to pay the full monthly charge after the end of their contract rather than switching to a cheaper deal and that those people could collectively be overpaying by £130 million per year. That is far too great a scale of consumer detriment for us to live with. It represents too many people paying more than they need to, by continuing to pay for the cost of a mobile handset when they should no longer be doing so—essentially after they have paid for it. Many of those people are more vulnerable consumers, including older people—the hon. Lady referred to the difference between the percentage of older people who were continuing to pay for their handset after it had been paid off—and those in lower income segments. Some people may just be very busy. The Government recognise that action is needed.

Ofcom estimates that the issue affects a minority of customers with a mobile phone contract, approximately 6%. In percentage terms, it is a small minority, but it amounts to about 1 million people, which is no small number. On the plus side, we have a highly competitive market in telecoms, which is good for consumers, and we should recognise that fact, as well as working tirelessly to address those areas that work less well.

[Carol Monaghan (Glasgow North West) (SNP)]

There is a highly competitive market, but for many of the vulnerable consumers we are talking about—many of whom are elderly or possibly without access to the internet—the landscape is extremely confusing. The onus should be on the phone companies to help those customers get the best deal.

[Margot James]

I recognise what the hon. Lady says and I quite agree. I found the same thing in respect of the energy market; I am well attuned to that fact. For the sake of completeness, I wanted to mention some of the positive things that are happening, which I accept may be less accessible to some older consumers.

The Digital Economy Act 2017 included several measures that are helping Ofcom to empower and protect consumers. Of particular relevance is that the legislation included help for Ofcom to set switching rules for communications services. As a result, Ofcom has recently announced the implementation of a new text-to-switch process for all mobile customers. Consumers will be able to send a free text to their current provider to request a switching code that they give to their new provider for a timely and seamless switch. The change will make switching much quicker and easier for consumers and will go some way towards addressing the issue that the hon. Member for Glasgow North West (Carol Monaghan) raised. The measure must come into effect no later than July next year.

We recognise that we may well need to go further. As the hon. Member for North Ayrshire and Arran said, in our manifesto we set out our commitment to make billing for telecoms customers fairer and easier to understand. In my opinion, that means it must be more transparent. That includes making it clearer when a customer has paid off the price of their handset and is in a position to switch to a cheaper deal, saving them money. She emphasised how important it is for the Government to work with Ofcom, mobile providers and other stakeholders, such as Citizens Advice, to resolve the issue in a way that helps people save money. I assure her that my Department has already been working with all of those parties, and I am committed to continuing that engagement.

I have not come to any firm conclusions about the best solution to this issue. I will listen to the views of all stakeholders—in particular, to those expressed by the hon. Lady in this debate—and we will work in partnership with Ofcom and the mobile providers to get a fairer system with lower prices. I am clear that any solution we develop with Ofcom and the mobile providers must stop people languishing on their mobile phone contracts after their contract period has ended. We want the savings that are their due to be returned to them. Importantly, any solution needs to address the needs of all consumers—particularly those who are older and most vulnerable.

[Patricia Gibson]

Does the Minister agree that leaving this in the hands of the mobile providers has not worked so far? Action has to be taken to force or compel the mobile phone providers, or otherwise get them to change their behaviour.

[Margot James]

Although I have not come to a settled view on the matter yet, I agree with the hon. Lady that what has gone on so far—there has been an over-reliance on the mobile phone providers putting their house in order—has not worked to my satisfaction, given that 1 million people are still overpaying.

I am aware that some stakeholders would like to see the end of bundled mobile phone contracts, and want all contracts to be split, with the cost of the handset split out from the cost of services. The pricing of split contracts can be more transparent for consumers than bundled contracts, although split contracts are not without consumer issues. At the moment, providers can make a commercial decision to offer split or bundled contracts, or a choice. A number of mobile phone providers now offer only split contracts and others, such as Tesco Mobile, continue to offer both split and bundled contracts. Other groups, such as EE, Vodafone and Three, offer only bundled contracts. As I said earlier, it is a highly competitive market, in which consumers have a wide degree of choice, including in relation to whether to opt for a bundled or a split contract. However, I accept that when people who are not knowledgeable about the complexities of the market are dealing with a household name that offers only a bundled contract, that is not a great deal of help.

Consumers may choose bundled contracts because they continue to offer good value for money for many consumers. Ofcom research from last March found that such contracts are particularly good value for mobile users with medium to high usage, but such deals can obscure overcharging, as the hon. Lady so ably highlighted. We are therefore prepared to intervene if we deem that to be the only way to resolve this issue. I am committed to preventing people from paying too much by remaining on the same bundled contract after the end of the contract period. No one should continue to pay for a product that they have already paid off. Ofcom, our independent regulator, is continuing to monitor this issue closely. I expect to see movement to address this issue from the mobile operators.

I remind hon. Members that this year the Government will publish a consumer Green Paper, which will explore further ways we can help to protect, support and empower consumers, including those in the mobile communications market. I very much agree with the hon. Lady’s remark before we suspended for all the votes that mobile telephony has become a crucial utility that most people simply cannot do without.

I reiterate my thanks to the hon. Lady for securing this debate, and I thank all hon. Members who contributed to it. I will leave her a few minutes, if she requires them, to make a few closing remarks. Before that, I reaffirm my commitment to work with Ofcom, the mobile providers and organisations such as Citizens Advice to address this issue and broader issues in the telecoms market that consumers face.

[Mr Philip Hollobone (in the Chair)]

Order. I am afraid it is not in the Minister’s gift to offer the sponsor of the debate a second go during a half-hour debate.

[Margot James]

I apologise for that, Mr Hollobone.

[Mr Philip Hollobone (in the Chair)]

Apology accepted.

Question put and agreed to.