Broadband customers to save £270 million following Ofcom review

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Broadband customers who are out of contract are set to benefit from a package of pricing changes and commitments from their providers, following a review by telecoms regulator Ofcom.

The broadband market offers customers a wide range of choice, with different deals on offer to suit different needs. But Ofcom is concerned that many customers – particularly some who are facing challenges – are not benefiting from the discounts available.

In September, Ofcom secured commitments from BT, TalkTalk and Virgin Media to reduce prices automatically for vulnerable customers who are out of contract. It has now secured commitments from EE, Plusnet and Sky to do the same. EE and Plusnet have also now joined BT, Sky and TalkTalk in deciding to give all existing customers access to new customer prices.

In total, Ofcom estimates the pricing changes made by providers since it opened its review could ultimately benefit all out-of-contract customers by over £270m per year. This would address more than half of the nearly £500m difference in what out-of-contract customers pay compared to average prices.

Says Jane Rumble, Ofcom’s Director of Consumer Policy:

“We’ve already made it easier for people to get a discount and save money. But we’re concerned some customers who find it harder to seek better deals are missing out.

“So we’re pleased providers have done the right thing by cutting vulnerable customers’ bills. We’re now calling on them to go further and take extra steps to identify and support customers who might be vulnerable.”

Adds Richard Neudegg, head of regulation at Uswitch.com:

“Millions of people who have worked from home during the past four months can testify that broadband is a vital part of modern Britain’s infrastructure.

“There have been significant improvements since Ofcom started shining a stronger light on the need for customer fairness in the broadband sector.

“But this report is a stark reminder that being out of contract often means paying an average of £56 a year more than customers who are in contract with the same provider. Changing providers and going for a new deal can bring even greater cost savings.

“It’s positive that vulnerable customers are now shielded from some of the biggest overpayments and Ofcom is right to keep pushing providers to get help to those who need it. 

“But more work needs to be done – households stuck with copper cables still face a double whammy of slow connections and paying more than those with superfast broadband. It’s time that this unfair situation was resolved.

Broadband pricing practices

These new measures to help vulnerable customers are part of Ofcom’s wider review of broadband pricing. When a broadband customer’s initial discount comes to an end, this usually leads to a default price rise. Customers can avoid paying higher prices by negotiating a new deal or switching provider, but those who don’t are likely to be paying more than they need to. This is often referred to as the ‘loyalty penalty’.

Ofcom has found that around 40% of broadband customers (8.7 million) are out of contract. On average, these customers pay around £4.70 per month more than their provider’s average price for their service. But there are significant differences between the additional amounts that different companies’ out-of-contract customers pay, and the proportions of customers who are out of contract:

The proportion of customers who are out-of-contract varies from provider to provider, and so does the amount more than the provider average they pay each month.

How to avoid paying more than you need to

Ofcom rules introduced in February mean that customers must be warned by their provider when their current contract is ending, and what they could save by signing up to a new deal. This gives people the information they need to take action and avoid an automatic price rise at the end of their initial contract period.

Ofcom has also set out three main steps it wants providers to take:

  1. Better identification of vulnerable customers. Last week, it published a guide on treating vulnerable customers fairly, which contains steps providers can take in relation to this.
  2. Better support for vulnerable customers who have been out of contract for a long time. Providers should consider strengthening their existing commitments for vulnerable customers to ensure people who struggle to engage do not pay high prices as a result.
  3. Additional help for those who are struggling to pay their bills. Some customers have found themselves in financial difficulty due to the coronavirus. Ofcom welcomes steps providers have taken to support customers so far, and has called on industry to be proactive in engaging with customers who are struggling to pay. This includes offering customers a cheaper tariff, for example, where they are in debt and on a high out-of-contract tariff.

 

Chris Price
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