Telecommunications regulator Ofcom has banned automatically renewable contracts (ARCs), which approximately 15 percent of UK consumers are thought to be locked into.
These rollover deals tie residential and small business customers into long-term landline and broadband contracts automatically unless they specifically opt out. Currently, telecom providers do not alert their customers of the date their contracts end, so users don't know when they still have the opportunity to quit.
Independent public body Consumer Focus, which champions consumers and investigates failing services, has welcomed Ofcom's decision.
"Rollover contracts can be confusing and penalise customers. Many people have been unknowingly rolled over into another contract," said Director of External affairs at Consumer Focus Adam Scorer. "This has left them unfairly tied into a contract which they had to pay a penalty fee to escape."
The telecoms providers that currently offer ARCs to consumers are British Telecoms (BT), Adept Telecom, Axis Telecom, Eze Talk and iTalk, while TalkTalk Business, Titan Telecoms, and Optimum Calls offer them to small businesses.
Ofcom has also imposed a proviso that all telecoms providers must move their residential and small business customers currently on rollover contract onto alternative deals.
"Ofcom's evidence shows that ARCs raise barriers to effective competition by locking customers into long term deals with little additional benefit," said Ofcom Chief Executive, Ed Richards. "Our concern about the effect of ARCs and other 'lock in' mechanisms led to our decision to ban them in the communications sector."
BT disagrees that they have done anything wrong, telling the Financial Times: "BT is disappointed that Ofcom has decided to ban renewable contracts. 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."
Despite the ban only taking effect on 31 December 2012, BT has decided to discontinue the sale of rollover contracts immediately.
Perhaps this decision is ensure that the news is quickly buried beneath the excitement of their involvement with the 2012 Olympics, as well as BT's rollout of high-speed broadband using fibre-based infrastructure.