Mobile Phone Contracts

Patricia Gibson Excerpts

Tuesday 16th January 2018 Westminster Hall

[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.

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[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.

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[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.