Ofcom have banned so-called 'rollover' broadband contracts which automatically renew unless customers opt-out.
The regulator had previously indicated that it was concerned that rollover contracts make switching broadband and phone providers harder and more costly or stop consumers switching broadband deals.
As of December, customers won't be able to get tied into another long-term contract without their explicit consent.
By December 2012, those currently on automatically renewing contracts must have the terms of their deal changed.
Approximately 15% of British broadband and calls customers have an automatic renewal which imposes a fine for early cancellation unless the customer has previously opted out.
BT is, by far, the worst offender despite the fact that it's also one of the few providers still clinging on to 18-month contracts.
TalkTalk and Orange have both switched to 12-month contracts recently in an effort to attract more customers.
Paying the penalty
Customers with broadband and home phone contracts will typically have signed up for an initial 12 or 18 month period which then continues on a monthly rolling contract basis after the time is up.
If they then fancy switching to another provider, for example to a cheaper broadband deal, they would be free to do so without incurring a penalty for ending their contracts.
Those on rollover contracts find themselves contracted for a further 12 or 18 month period with the same supplier.
Meaning that, if they want to switch, they'd be liable to pay a weighty sum to escape the clutches of their rollover contract.
Welcomed by consumer groups
Consumer groups welcomed the regulator's ruling.
"Rollover contracts can be confusing and penalise customers," said a spokesperson from Consumer Focus.
In addition, automatic renewal has been found to act as a barrier to consumers who want to switch broadband or landline provider.
Senior policy advisor at Which? Dr Rob Reid agreed.
"We are pleased to hear that Ofcom has followed this policy line, one that Which? supports, despite many major telecoms providers pushing for ARCs to be maintained," he said.
Ofcom's removal of rollover contracts will open up the marketplace, making it more competitive and providing customers with the freedom to shop around.
Ed Richards, chief executive of Ofcom added that the regulator's evidence "shows that [automatically renewed contracts] 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."
BT bites back
BT has not taken the negativity surrounding its rollover line rental contracts lying down and has fought back saying it was disappointed with Ofcom.
A statement from the telecoms behemoth said, "Our customers tell us that they are happy with the discounts offered by these contracts and we don't believe there is any evidence that they damage competition...We have worked hard to make sure that customers understand what they are signing up to, including how the renewal works and the charges that apply if they choose to leave early.
"In exchange for these terms customers get a significantly lower price and as the renewal approaches we contact them within 30 days of the contract end date."
Julia Kukiewicz, Editor of Choose suggests consumers should weigh up the pros and cons of their broadband contract before signing up.
"Anyone signing up to a lengthy contract of any sort should make sure they consider the options presented to them carefully and ensure that they are aware of not only the potential benefits but also the potential pitfalls of 'rollover contracts'," she said.
"The last thing you want to realise when wanting to escape your current contract and switch to another broadband or phone provider, is that you are locked in for a further year and a half."
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