Ofcom says mid-contract price rises need to be clearer

Broadband, Mobile phones, Telecoms

Mobile and broadband customers must be told upfront about any mobile price rises when signing a new contract, under new consumer protection plans set out today by Ofcom.

With most major phone, broadband and pay TV companies now including mid-contract price rises linked to uncertain future inflation, Ofcom is concerned that customers’ contracts do not provide sufficient certainty about the prices they will pay.

While some broadband prices have increased this year, over the last five years average prices for broadband and mobile services in the UK have fallen in real terms. At the same time, companies have been investing in upgrading their networks, while average speeds and data use have increased.

However, for competition to work, consumers must be able to shop around with confidence, says Ofcom.

In recent years, pricing practices where providers impose an annual rise linked to unpredictable future inflation, plus an additional percentage of typically 3.9%, have become significantly more widespread, undermining customers’ understanding of what they will pay.

Timeline: Introduction of inflation-linked price variation terms including an additonal fixed percentage

Ofcom’s analysis of providers’ data shows that as of April 2023 four in ten (11 million) broadband customers and over half of mobile customers (36 million) were on contracts subject to inflation-linked price rises. Furthermore, Ofcom estimates that these numbers may grow further, to around six in ten of both broadband and mobile customers, as Three and Virgin Media apply inflation-linked in-contract price rise terms to more of their customers’ contracts during 2023/24.

However, awareness and understanding of these terms is very low. More than half (55%) of broadband customers and pay monthly mobile customers (58%) do not know what inflation rates such as CPI and RPI measure. And of those who are with providers that use inflation-linked price rises, very few broadband (16%) and mobile customers (12%) were both aware of the price rise and able to identify that it was inflation-linked with an additional percentage.

Ofcom also found that even when people do consider future inflation-linked price rises when choosing a contract, they often do not understand them fully and find it difficult to estimate what the impact could be on their payments.

Between January and October 2023, Ofcom received over 800 complaints related to price rises – almost double the volume of complaints received during the same period in 2021 – many of which highlighted uncertainty created by inflation-linked price rises.

Says Peter Ames, broadband expert at Broadband Genie: “For too long broadband customers have faced uncertainty about how much their bill will increase each year, and this practice has rightly come under scrutiny as inflation spiralled out of control.“In the interest of transparency and fairness, customers should always be informed about price rises in clear terms of pounds and pence so that they can make an informed decision before signing on the dotted line. All too often, the mention of inflation-linked increases are buried in the small print of a contract.“We would also like to see Ofcom go even further with these proposals and allow customers to leave their contract penalty-free if the price hike they face becomes unaffordable for them. 

“Even better, Ofcom should be looking at banning providers from making any kind of price rise halfway through a contract, as many customers don’t realise that they can do this when signing up to a new deal.”

Chris Price
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