Firms will have to alert customers when their deal is coming to an end and must tell customers every year about the best deals they offer.
The watchdog said that people who bundle their landline and broadband services together pay, on average, around 20 per cent more when they are ‘out of contract’. This rises to 26 per cent among customers who bundle their pay-TV with these two services. Meanwhile, around one in seven customers don’t know whether they are still tied to their original deal; and around one in eight believe they are ‘in contract’, but don’t know when this period ends.
Under the new rules, companies will have to send their customers the information they need about their contract between 10 and 40 days before their contract comes to an end by text, email or letter. when they need it, so they can choose the best package for them. These protections are the latest in Ofcom’s Fairness for customers programme.
Consumer groups welcomed the move, saying it would encourage people to shop around when their deals come to an end.
Holly Niblett, head of digital at comparethemarket.com said: “This is a milestone in consumer telecoms and a significant moment for some UK households. The practice of rolling people onto uncompetitive end-of-contract packages without telling them is inexcusable and has gone on for far too long. We all lead busy lives and it is easy to forget the exact date your mobile, broadband, TV packages, or landline contract expires.
"Companies have been exploiting this forgetfulness for years, enticing people with great deals and then rolling them on to rip off packages upon the deal’s expiration. Knowledge is power, and households receiving formal notification that their contract is going to end should act as a trigger to get people shopping around and selecting the best deal for them in the market. "
Natalie Hitchins, head of home products and services at Which?, said: "Until now many customers have found themselves paying over the odds for staying with their provider after their initial contract has ended - so notifying people in advance that they may be about to be hit by these poor value rolling tariffs is a step in the right direction.
"Providers should be fighting hard to show that they deserve to hold on to their customers, not hitting them with an unexpected price hike the minute their contract is up."
She added: "Anyone nearing the end of a contract should compare prices to see if there is a better deal available - switching suppliers could potentially save you hundreds of pounds a year."
Lindsey Fussell, Ofcom’s consumer group director, said: “We’re making sure customers are treated fairly, by making companies give them the information they need, when they need it.
“This will put power in the hands of millions of people who’re paying more than necessary when they’re no longer tied to a contract.”
The changes will involve providers sending personalised and tailored information to millions of individual customers. Providers have nine months to make the necessary changes to their systems and processes.
Customers will start receiving the notifications from 15 February next year.