British Telecom has been criticised by Trading Standards for charging customers £4.50 extra each quarter if they do not pay by direct debit.
BT says processing payments other than direct debits costs more
Trading Standards called the charge affecting about five million customers "outrageous" and "unjustified".
But the telecoms giant said it cost more to process non-direct debit payments and that those customers were also more likely to forget to pay.
BT also said it would soften the blow to customers by giving more discounts.
The BBC's Sumant Bhatia said other companies, including Virgin Media, the Post Office and Telecom Plus, also charged more to those who do not pay by direct debit.
Last month BT revealed the number of people signing up to its home phone services grew for the first time in four years during the last three months of 2006.
In the final quarter of 2006, 37,000 more users signed up for the phone service after BT cut prices in August.