The cost of mobile phones will decrease for millions of customers.

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Mobile phone companies are to reduce bills for millions of customers who are not under contract, but who nevertheless pay monthly fees for smartphones.

Most customers pay a fixed 24-month fee for the latest model in a package with talk time that covers calls and Internet usage. But up to two million remain on the same monthly fee, even if the purchase price is paid.

The “loyalty penalty” costs customers up to 182 million pounds a year. However, the Ofcom regulator believes that the rip-off process will end after voluntary steps by all major companies except Three.

Tesco Mobile will reduce the monthly fees for those who pay too much to its best airtime rate; Virgin Mobile will convert customers who are outside the contract to the equivalent of a cheaper 30-day SIM card; O2 will do the same for its own direct customers. Vodafone and EE will lower prices for those not under contract for more than three months to bring them up to a pure SIM card rate.

Ofcom welcomed these measures, but stressed Three’s refusal to follow suit. It said, “These customers will continue to pay too much and will not receive similar protection if they stick to their current business.

The Watchdog had proposed to legally force companies to switch customers outside the contractual relationship to their cheapest offer. However, the EU refused to accept this and outlined a number of alternative measures.

Now customers who sign a bundled contract will be told separately the cost of handset and talk time. This will help buyers to see when they can switch to a phone and data contract.

Ofcom’s Lindsey Fussell said: “All major mobile operators – except Three – will reduce bills for millions of customers at the end of their original contract term.

Gillian Guy of Citizens Advice said: “Most mobile operators have realized that the game is over – they can’t take advantage of loyal customers.

Three British companies stated that Ofcom’s proposals would not encourage people to look around and said they risk creating a “stagnating market”.

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Mette Frederiksen is a The Washington Newsday correspondent. With her coverage of general science, NASA and the interface between technology and society, Frederiksen has been in the Science Desk's Technology Beat since joining Washington Newsday in 2018.

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