Are you overpaying for your smartphone?

Are you still paying for your smartphone, even though your contract has ended? If so, you could be one of 4 million UK consumers who have been charged for phones they already own.

What’s the problem?

Research from Citizens Advice has found that some mobile providers have continued to charge customers for smartphones, even after their contract has ended and they own the handset outright – collectively bagging the providers a staggering £490 million.

The research surveyed more than 3,000 smartphone users and found that those customers who have been overcharged were paying an average of £22 a month, rising to as much as £38 a month for top-of-the range Galaxy and iPhone handsets. And it seems elderly customers are the most vulnerable – older phone users are twice as likely to continue paying for their phone for over a year after they’ve paid it off, meaning they overpay by an average of £264!

Bundling handsets and service contracts is common practice now, and while it has offers the benefit of being able to spread the cost of an expensive handset, Citizens Advice has identified two major drawbacks to this pricing model:

  1. A lack of price transparency before you sign up – By blurring the cost of the phone and data allowances, handset-inclusive contracts make it more difficult to know what the best deal is. Research from Citizens Advice found although over half (55%) of consumers consdiered bundled deals to be cheaper, in three quarters (73%) of cases it’s actually cheaper to buy a handset and data separately. This lack of transparency is causing millions of consumers to overpay.
  2. A ‘handset loyalty penalty’ at the end of the minimum contract period – This is when customers continue to pay the original price of their contract, even though they’ve fully paid for their current handset, and haven’t upgraded to a new one. 1-in-3 bundled contract consumers go beyond their minimum contract period, equivalent to 4 million people. On average they spend six months beyond their minimum contract and face a loyalty penalty of £22 a month, adding up to combined overpayments of £490 million.

What needs to be done?

We recently highlighted how bundled deals could see customers overpaying for data by as much as £69 a year, and these latest findings will no doubt be another blow to consumer confidence. Although phone companies must notify customers as their contract end date approaches, Citizens Advice has suggested that Ofcom, the industry regulator, should insist providers send more than one notification, and be required to collect and publish data on the number of consumers beyond the minimum contract period by each provider.

And because three of the UK’s major providers – EE, Three and Vodafone – have been found to be overcharging customers in this way, Citizens Advice is calling for them to provide clearer pricing information and stop charging for handsets at the end of the minimum contract period. It even suggests that the government should intervene if the industry can’t properly regulate itself.

Gillian Guy, chief executive of Citizens Advice, said: “We’ve heard a lot of talk from government and the regulator but now we need action. Other companies have already stopped doing this so we’re looking for these three major providers to follow suit.”

She added: “In the meantime, consumers should check their phone bills to see if they can save money with a SIM-only contract or upgrade to a new phone.”

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