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Problems with 3 - advice please!

Hi there, I've been with 3 for about 4 years now and had various upgrades etc, my current contract is due for expiry on the 23/10/09 so I can officially request to cancel this on the 23rd of this month.

I've never had problems with 3 before, but 2 months ago, my phone 'randomly' seemed to drop signal and now displays 'Emergency Calls' only on the screen. (This happened whilst sat in my drawer at work) I turned it on and off, removed battery, sim card etc but it still doesn't work.

I called 3 up TWO months ago to tell them about this and following a pretty useless conversation with their abysmal call centre staff they confirmed that there are no problems with the account, no bills outstanding etc and everything should be working fine... they told me to go to my local 3 shop to get it checked to find out if it is a problem with the sim or the phone. The 3 shop said it was the sim card that was faulty and I had to call 3 to get a new one sent out.

I received the new sim card, put it in my phone and it still doesn't work... my mum is on 3 too so when I saw her next I put her sim card in my phone - which worked fine and then put my sim card in her phone - which worked fine too... Not sure what's going on there but my sim card won't work in my phone...

3 are pretty much being completely useless - they have yet offered to do any tests on my phone and after 6 phone calls (at around 2 hours a time) during the last 2 months my phone is still not working but the bills arrive like clockwork!

Eventually I've had enough and have taken out a new contract with a different supplier and want to cancel this contract, however I don't feel I should have to pay a cancellation fee or the last 2 months bills because they aren't providing their part of the contract by giving me a service... Now 3 are refusing to cancel my contract without penalty and saying I must pay the 'termination fee' but are confirming that I am not receiving any service and haven't been for the last 2 months...

I finally have received a one month credit to my account and the promise of a second month credit (which I will believe when I see it) but I just want to get out of this contract and wash my hands of 3 all together.

Surely they must have a legal obligation to provide the service they are charging me for - and if they are unable to provide this service then I must be able to cancel the contract without penalty? Anyone have any advice for me as I am getting a call back tomorrow from them and I want to be fully armed to get this cancelled once and for all!
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