The cost of terminating a phone and broadband package early will be cut by as much as 85 per cent, following a ruling from Ofcom.

The watchdog has been discussing the issue with BT, TalkTalk and Virgin Media over the past 18 months.

Ofcom said it wanted 'early termination charges' to reflect the savings the companies are making by no longer having to provide the service to users and should never total more than the payments left under the contract.

The providers initially believed the charges were not unfair. However, following the discussions, they have agreed to significantly reduce the early termination charges for landline and landline plus broadband services.

Ofcom said it was "pleased" the providers had taken "positive steps in the interests of consumers". It also expects other landline providers to follow suit. If they don't, the watchdog said they may face legal action.

As each provider has different costs to account for, early termination charges will vary from company to company.

'TalkTalk is committed to dealing with its customers in a fair and straightforward manner and today's Ofcom announcement does nothing to change that," TalkTalk said.

"Ofcom's Early Termination Charge methodology will create greater confusion as it means customers can pay vastly different Early Termination Charge amounts depending on retail pricing and underlying network technology – an area in which customers have understandably little knowledge or interest."

The company added it was "disappointed that Ofcom is not requiring BT to reduce any broadband Early Termination Charges meaning that millions of BT customers will still be required to pay high penalties if they wish to move to a better value deal while in contract".

"In our view, the real issues from the customer perspective, and the ones that Ofcom appear unable, or unwilling, to address, are BT's unchanged broadband charges and BT's unfair practice of rolling contracts where customers are automatically signed up to a new contract. This penalises customers that wish to move to another supplier to get a better deal once their original contract has expired."

TalkTalk's new early termination charges have already come into force, while BT and Virgin Media says the new charges will be introduced in October this year.