IFRS 15 rollout will stop mobile networks overcharging after contracts end

Telecoms giants Vodafone, EE and Three are continuing to charge customers extra for a handset after this cost has been covered in their fixed deal, research suggests, despite the looming prospect of IFRS 15 Revenue from Contracts with Customers

The incoming accounting standard will see services and assets separated in what is called performance obligations. Under the standard, businesses have to produce a comparative year, so many companies are already recording this information internally, in preparation for the standard to take effect from 1 January 2018.

However, Citizens Advice found customers who do not take out a new contract are paying an average £22 extra per month, with some paying as much as £38 a month more than they needed to for high-range phones. The government said the mobile networks needed to inform customers when they had paid for their handsets.

According to its 2017 annual report, Vodafone will be applying IFRS 15 from 1 April 2018. BT, which owns EE, will also apply the standard from 1 April 2018 and will be adopting it retrospectively, applying it to each prior reporting period presented in its 2018/19 financial statements.

Although Three has not made any specific references to IFRS 15 in its filings with Companies House, its parent company, Hong Kong-based CK Hutchison Holdings said in its 2017 interim report statement that it would be adopting Revenue from Contracts with Customers for its reporting periods from 1 January 2018. O2 has been splitting the cost of handsets from network services for four years by invoicing the call bundle separately from the handset deal, which is treated as an interest-free loan purchase agreement.

CCH Daily is waiting to hear from Vodafone, EE and Three about how IFRS 15 will affect its customers’ bills after they reach the end of fixed term contracts. However, Vodafone said in a statement: ‘We strive to give our customers the price plan that best suits them. Wherever possible, we contact customers nearing the end of their contract to offer them a range of options. These include being able to upgrade their handset, receiving an extra allowance to enhance their existing plan or, if they choose, switching to a SIM only plan. Customers can also change phones after just six months with our flexi-upgrade.’

EE said: ‘Separating phone and tariff doesn’t always represent the best deal for consumers, it can sometimes result in them paying more, and EE customers have the flexibility to choose the tariff and upfront phone cost that’s right for them. We send our customers regular updates about their options before and after they reach the end of their contract, and the vast majority of our customers upgrade to a new phone or move to a SIM only plan near the end of their contract. All of our customers can move to a SIM only plan as early as 45 days before the end of their contract, and our customers can also take advantage of the annual upgrades included in our 4GEE Max plans.’

A Three spokesperson said: ‘Whenever a new customer signs with us, we make the end-date of the contract term very clear. We also let them know that they can contact us at any time to discuss the range of options available should they wish to change their plan with us.

‘We encourage all Three customers to contact us if they would like to change their plan at the end of their fixed term deal.’

Gillian Guy, chief executive of Citizens Advice, said: ‘It is clearly unfair that some phone providers are charging loyal customers for handsets that they have already paid for.

‘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.’

Telecoms regulator Ofcom said it shares Citizens Advice’s concern ‘that some mobile customers who purchase a handset bundled with their service plan continue to pay the full monthly charge after their minimum contract term ends’.

Vodafone’s annual report for 2017 is here.

BT’s annual report for 2017 is here.

CK Hutchison Holdings’ interim report is here.

Citizens Advice's research is here.

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