- Ofcom targets mid-contract price increases
- Inflation-linked hikes confuse consumers
- Providers urged transparent pricing
Any mid-contract price increases for phone, television, and broadband services must be disclosed to customers at the point of sale and “in pounds and pence” for new plans.
Ofcom expressed concern that contracts did not provide customers with “sufficient certainty” due to numerous providers incorporating inflation-linked mid-contract price increases.
The action follows a February assessment by the regulator.
Elevated inflation levels resulted in bill increases for millions of clients.
Contractual agreements frequently stipulate monthly fee increases by inflation, denoting the pace at which aggregate prices escalate throughout the economy.
Due to the significant surge in inflation rates observed in the previous year, customers have been billed considerably more than in prior years. Ofcom data shows approximately 36 million mobile customers, and four in ten broadband customers paid inflation-linked price increases as of April 2023.
Price practices by telecommunications companies, adding 3.9% to the annual increase linked to the inflation rate, have become “significantly more widespread,” undermining customers’ understanding.
Addressing Confusion Over In-Contract Increases
Companies suggest specifying at the point of sale precisely how payments will increase throughout the contract, rather than including “uncertain future” inflation-linked or percentage-based price increase provisions.
“Prices must be transparent as crystal.”
Ofcom’s CEO, Dame Melanie Dawes, states that current in-contract price increases “leave most individuals confused by the sheer complexity.”
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She added that in an era when household finances are under significant strain, consumers require transparent pricing information.
Virgin Media, recently merged with O2, was the most recent provider to implement inflation-linked price increases for its landline and broadband services in May, following the Retail Prices Index (RPI) at 11.3% plus an additional 3.9%.
In March, Tesco implemented a price increase of 10.1%, equivalent to the Consumer Price Index (CPI) inflation rate at the time plus an additional 3.9%.
Since 2020, BT, Vodafone, and EE have also implemented similar procedures.
Between January and October, Ofcom received over 800 complaints regarding contract price increases, nearly double the number received during the same period in 2021.
Clients faced challenges in comprehending the ramifications of inflation-linked increases on their payments and lacked information about the definitions of the RPI and CPI inflation rates.
Addressing Concerns and Committing to Transparency
Ofcom stated, “We have provisionally concluded that terms for mid-contract price increases linked to inflation can significantly harm consumers by complicating the process of shopping for a deal.”
Furthermore, these conditions necessitate that customers unjustly bear the responsibility and expense of financial instability resulting from inflation, which significantly impairs their capacity to control expenditures when household funds are already constrained.
Virgin Media O2 stated, in response to Ofcom’s intentions, that it had always been forthright and honest with its customers concerning price adjustments.
Higher inflation not only affects households but also substantially influences the expenses incurred by our business. While we acknowledge the unwelcome nature of price increases, operators must continue to invest in dependable and prompt services.
However, Giffgaff’s CEO, Ash Schofield, stated that the mobile network provider concurred with the regulator and disliked inflation-linked price increases during contracts.
“The reality is that most individuals do not read the fine print in contracts, making it difficult to comprehend the true financial impact of mid-contract price increases. “For the duration of their contract, individuals are entitled to monthly expenditure certainty,” he stated.
“Citizens are due certainty.”
Tristia Harrison, group chief executive officer of TalkTalk, stated that if Ofcom prohibits providers from attributing in-contract price increases to inflation, the regulator should also examine comparable procedures for Openreach, the wholesale division of BT-owned broadband network operator Openreach in the United Kingdom.
She further stated that the connection between the two is indisputable, crucial for safeguarding consumers and competitors, and requires attention.
However, an Openreach representative stated that the company’s prices had decreased “as demand for broadband and data exploded for more than a decade” before Ofcom granted permission to link a portion of our prices to inflation, which enabled the company to invest in quicker, more dependable full fibre broadband throughout the United Kingdom.
Despite some broadband price increases, Ofcom reports that the average cost of internet access and mobile services in the United Kingdom has decreased in comparison to the rate of inflation over the past five years.
It stated that businesses had invested in network and average speed upgrades but added that “consumers must be able to shop around with confidence” for competition to exist in the industry.
The director of policy and advocacy for the consumer organization Which?, Rocio Concha, described Ofcom’s proposals as a “huge win for consumers.”
As Ofcom has halted these unjustifiable price increases, she stated that providers must promptly cease this practice.
Until February 13, the regulator will solicit feedback on its proposals; it anticipates issuing its final decision in the spring of 2024.
