Broadband and landline phone contracts that tie customers into long-term deals are to be banned, telecoms regulator Ofcom has announced.
Currently, customers who reach the end of their minimum contract period are automatically rolled over to a new term.
Customers then face penalty charges if they decide to leave once they are tied into this new contract period.
Ofcom estimates that approximately 15 per cent of residential consumers are on these rollover contracts, also known as automatically renewable contracts (ARCs).
The regulator says its research shows that rollover contracts make it harder for customers to switch, which reduces competition in the broadband and landline market.
Ofcom’s chief executive Ed Richards said: “Ofcom’s evidence shows that ARCs raise barriers to effective competition by locking customers into long-term deals with little additional benefit.”
“Our concern about the effect of ARCs and other lock-in mechanisms led to our decision to ban them in the communications sector."
The ban comes into effect on 31 December 2011.
Adam Scorer of watchdog Consumer Focus welcomed the ban.
He said: “Rollover contracts can be confusing and penalise customers. Many people have been unknowingly rolled over into another contract. This has left them unfairly tied into a contract which they had to pay a penalty fee to escape.”
If you’re in the market for a better broadband deal, check out these offers below but hurry, some are for a limited time only.
BT - Broadband and anytime calls
Free for three months, £16 a month thereafter. Up to 20Mb broadband speeds, includes wireless BT Home Hub and unlimited anytime calls to UK landlines and 0845 and 0870 numbers, plus a £25 gift voucher. Hurry, this exclusive online only offer ends 29 September.
Sky - Six months half-price broadband and calls
From only £5 per month with unlimited downloads and inclusive evening and weekend calls. Up to 20Mb broadband speeds. Hurry, this offer is time limited.
Orange broadband - free HP Deskjet Printer
Only £5 per month for existing orange customers and £10 for non-orange customers. Unlimited broadband, 12 month contract, free connection, free wireless router and unlimited Evening and weekend calls. Two for one cinema tickets with Orange Wednesdays and one free movie download from iTunes every Thursday.
Plusnet – 12 months half-price broadband
From only £3.24 a month for 12 months half-price Value broadband, with up to 20Mb broadband speeds. Free evening and weekend calls. Must take line rental at £11.99 a month. Hurry, this offer ends soon.
TalkTalk - 12 months half-price Essentials and Plus broadband
Only £3.25 for 12 months and £6.50 thereafter on Essentials, £7.25 for 12 months and £14.50 thereafter on Plus package. Free connection (usually £30) and free wireless router, with a 40GB download limit on Essentials and unlimited download limit on Plus. Up to 24Mb connection speed. Inclusive evening and weekend calls on Essentials or Anytime calls on Plus. Hurry, this deal ends 27 September.
Tesco broadband - Four months free plus 1000 Clubcard points
£8.00 per month thereafter, free connection, up to 20Mb broadband. Tesco line rental required at £11.75 per month which includes unlimited evening and weekend calls. UK-based customer services, Offer ends soon. Must use promotional code 4MFCC-F.
Virgin Media - Six months half-price broadband, phone and TV
From £10 per month for first six months, unlimited downloads, free installation worth £40 and free weekend calls. Hurry, this deal ends 30 September.
Primus exclusive - £6.79 line rental only
The cheapest standalone line rental in the UK is ideal for light users or customers who need a landline for broadband. Evening and weekend calls 1p per minute, daytime calls 6p per minute to UK landlines. 12 month contract.