'Rollover' phone contracts to be banned

Landline telephone contracts that automatically roll over and penalise customers for leaving are to be banned under proposals by regulator Ofcom.

The "rollover" contracts go forward to a new minimum period - with penalties for leaving - unless the customer actively opts out.

They are currently offered by BT and several smaller providers to residential and business customers.

Ofcom estimates that approximately 15% of UK residential consumers are on rollover contracts.

The communications regulator said it was concerned that rollover contracts made it harder for customers to switch providers and consequently reduced the benefits of competition.

Ofcom said: "For individual customers, this can mean that switching is made unattractive as the costs involved are unexpectedly high.

"For the market generally, it means less competition as it is harder for competing providers to attract customers on rollover contracts and therefore their ability and incentive to create lower cost and higher quality services is reduced."

If the proposal is successful, providers who continue to offer this type of contract could face a financial penalty of up to 10% of turnover.

Consumer Focus spokesman Robert Hammond welcomed the move, saying: "Rollover contracts are unfair and confusing for customers. They have also hindered competition by making it harder for people to shop around and switch to a better deal.

"Many consumers have found themselves unwittingly rolled over into a lengthy contract, which they then have to put up with or pay a penalty to break. This was adding insult to injury and this ban has not come a moment too soon."

But BT said it was "disappointed".

A spokesman said: "Our customers tell us they are happy with the discounts offered by these contracts and we don't believe there is any evidence that they damage competition, given that the UK telecommunications market is amongst the most competitive in the world.

"We have questioned the validity of some of Ofcom's analysis, and we don't believe their proposals have our customers' best interests at heart.

"We have worked hard to make sure that customers understand what they are signing up to, including how the renewal works and the charges that apply if they choose to leave early.

"In exchange for these terms, customers get a significantly lower price, and as the renewal date approaches we contact them to give them 30 days notice to end the contract without charge."

Ofcom's consultation closes on May 12.