Mobile phone scams: Sharp operators

A text message arrives: it's an offer of a free upgrade to your mobile phone. The monthly line rental is lower and the package includes more calls. You'll even get a new handset thrown in. So you call back and take them up on the deal.

Have you just made a mistake that will be with you for the next two years? Are you sure you were speaking to your mobile phone network? Or was it a company you have simply never heard of, selling you a deal that will land you with higher bills, a phone you won't like, and a contract you're stuck with?

You may think you'd never fall for such a scam, but a surprising number of people do. With 70 million mobile phones now in use in the UK, almost 25 million of them on contracts that bill monthly, the industry has been a runaway success ever since it started up the 1980s.

But more of us are feeling short-changed. The industry's independent regulator, Ofcom, reported a rise in complaints during 2007 from people who felt that they had been mis-sold a mobile contract by unscrupulous middlemen. By the end of the year, complaints were running at about 400 a month.

Despite reaching an agreement last year with the networks and retailers on a code of practice, Ofcom has seen little reduction in complaints. "We're reviewing the whole area of mis-selling at the moment," an Ofcom spokesman says, "and we'll have more to say on this matter within a couple of months. But the key aim is to make the networks far more accountable for sales practices."

Until then, it pays to understand how the mobile sales industry works. Take the example of Madeleine Lees. Her continuing saga is typical. She received a call telling her that her contract with Orange was about to run out, and that she could upgrade her phone and switch to a more suitable price plan. She agreed. But her bills rose sharply, and she realised that – in spite of having explained her needs clearly – the new tariff included too many minutes of call time and not enough text messages. So she called Orange.

"Orange told me that my agreement wasn't with them, but with a third party – which was news to me. They said I needed to speak to the other company. The third party advised me that they couldn't terminate the contract unless I paid for a full 24 months – although every bill I've received lists my contract term as 18 months. Then, to complete the circle of blame, they told me it was up to Orange to resolve the issue."

In the back of her mind was the knowledge that simply stopping payments would mar her credit rating. This buck-passing is typical of many recent complaints. Although each of the five major mobile networks – O2, Vodafone, Orange, T-Mobile and 3 – sells phones directly, they also authorise a range of affiliate dealers to sell contracts on their behalf, in return for commission.

More than 400,000 contracts a month – that's almost five million a year – are sold by about 4,000 of these dealers, including the major players such as Phones4u and Carphone Warehouse, and independent high-street retailers. But right at the bottom of the heap are companies with no high-street presence. And it's from this sector that many of the complaints arise. Based either online or in call centres, these companies are behind many of the unsolicited offers made by calls and text messages.

The problem is not helped by the fact that paper contracts are rarely sent out to consumers. But the cause of these troubles can be traced back to the way the mobile sales industry works at its root. Unsurprisingly, networks will pay out more money to dealers if they succeed in selling you a higher-value contract. This can be achieved in two ways – by getting you to agree to a tariff with higher monthly bills, or to a contract that runs over a longer term. A few years ago, 12-month contracts were the norm. Now, 18-month contracts are standard, and some last two years.

These contract lengths are often blamed on the rising cost of more advanced handsets; remember that the upfront cost of the phone itself is absorbed into the contract. But in fact, the price of the phones has actually remained fairly static over the years. The real reason for the longer contracts is simply that they increase the value of each contract sold.

On the one hand, this means that we don't get a new phone so regularly – no bad thing, considering the environmental impact of discarded handsets. On the other hand, it only takes a change of circumstances – losing your job, illness, a move abroad, even just the theft of your phone – for problems to start. After agreeing terms in a single phone conversation, you are locked into a binding agreement, and the only way to get out is to pay the full cost of that contract, which can run to several hundred pounds.

Perhaps the biggest flaw in the system is that, once the middleman has secured his commission, there's very little incentive to offer any customer care. Indeed, many consumers can't even track down the company they've supposedly entered into the agreement with. And herein lies the biggest annoyance for many victims of mis-selling: that the middleman operates under a veil of secrecy, and often masquerades as the network itself.

Matthew Garrett's experience is common. "I was called by a company offering me a new contract," he says. "When I asked who was calling, they said it was Orange, but I'd already received two text messages and two unsolicited phone calls offering me a contract from a third-party company based in Wales – and this guy had a Welsh accent. When I suggested to him what the real name of his company was, he backed down."

Some dealers persist to the point of harassment. Christina McDermott tells of a company who contacted her up to 15 times a day. "When I told them to stop, they would frequently laugh down the phone at me. T-Mobile, with whom I had my contract, told me there was nothing they could do about it."

If you do sign up, many customers discover that they end up with a less-than-cutting-edge handset. Networks with a glut of handsets they can't get rid of will incentivise dealers to push those end-of-the-line models. Kate Dornan describes how she was "stung" with an expensive 18-month contract by a firm from Birmingham. "My supposed upgrade turned out to be a bottom-of-the-range, frankly embarrassing, neon-blue handset that barely worked. And it arrived when I was out of the country, so I missed the cancellation period. They even phoned me again at the end of the 18 months to try it on a second time – when I told them about the previous fiasco they went very quiet."

The most blatant problem, though, may be the so-called "cash back" deals. You're dangled the carrot of having a free mobile phone contract and handset for a year; you're merely required to send your mobile phone bills to the company by a certain date, and they will reward you with a cheque for the full amount. The deadline is usually set so that it's barely able to be met; the firms depend on you either forgetting to send the bill, or for the postal delivery to be late. If you follow the rules to the letter, you'll get a free contract. But it's more likely that you won't get your money back, or the company will go bankrupt, leaving you with a costly contract and no one to get your money back from.

Chris Caudle, the chairman of the Independent Mobile Phone Dealers Association (IMPDA), acknowledges that there are fly-by-night operators that the industry needs to get rid of. But cash-back deals and the like are the result of the networks competing too hard with their own dealers, he says. "The networks have started offering ridiculous deals – deals our dealers aren't allowed to offer – to lure customers away. We've asked the networks to talk to us, but they won't."

Until all these issues are dealt with, and more transparent sales practices are in place, we'll all just have to wise up.

There certainly seems to be a lack of dialogue between dealers and networks. Many industry observers can see that there's a desperate need for change. Steve Warren of the price-comparison website Uswitch.com says: "More responsibility needs to be taken by the mobile networks over companies using aggressive tactics to sell as many mobile contracts as possible." The IMPDA has called on Ofcom to introduce statutory regulation to protect consumers and eliminate uncompetitive practices, and the Labour MP Roger Godsiff recently lent his support.

Will they have any effect in holding to account an industry that generates £13.9bn a year? Please hold while we find out – but it'll be a few months before we have an answer.

What to do when the middleman calls
By Henry Brennan

Packages to suit you

*If you receive a text message offering you a mobile phone upgrade, ignore it.

*If you receive a cold call, be sceptical. If the deal sounds good, ask which company is calling, get a telephone number and a name, and call back.

*If you are using a high-street middleman, remember that the sales staff will often be given incentives to push a particular network, and that the assistants' advice might be best for their business, not for you. Shop around and negotiate.

*In all cases, ask explicitly about contract length and cancellation terms. There's often a time during the contract after which you can downgrade to a lower tariff; check when that is, too.

*Ask about extra costs, such as itemised billing. Remember that middlemen may also be on commission to sell insurance.

*Question anything that's supposed to be free.

*When asked what you currently pay per month, don't reveal the full value of your bills; tell them the monthly contract value, before any extra charges. Otherwise, if you tell them your bill is £40 a month, they might put you on a £40-per-month contract, and you could have to pay all the extra charges on top of that.

Advice supplied by Uswitch.com

The occasional user

Many pay-as-you-go packages now come with extra rewards. Orange's "Speak Easy Bonus Top-up" package works on a sliding scale that awards bonus credit on proportion to the amount you spend. If you get through at least £10 per month, you get 300 texts at the end of the month, for free. Alternatively, if texts aren't your thing, you can opt for a £1 credit instead.

The big talker

The network 3 offers an 18-month package that provides 900 minutes of talk time, or 900 texts, or any combination of the two (600 minutes plus 300 texts, for instance) for £24 a month, and offers a couple of decent free phones. The network also bundles in an extra 300 minutes per month to other 3 users. T-Mobile's "My Faves 25" package offers unlimited minutes and texts to five of your favourite UK numbers, plus 25 minutes of calls and 50 texts to other numbers, for £25 per month.

The text addict

T Mobile's 18-month Flext 35 package offers £180-worth of calls and texts, and costs you £30 per month. Calls are charged at 20p per minute to any UK network and texts cost 10p each. So that's 900 minutes or 1,800 texts – or a mixture of the two. The deal includes free weekend calls.