- Ofcom plans to ban mid-contract price increases
- Rise in social tariff usage
- Providers respond to proposals
The telecommunications regulator may prohibit mid-contract price increases for phone, broadband, and television services tied to inflation.
Due to concerns that “sufficient” certainty on costs is not presently provided, Ofcom outlined plans requiring businesses to provide advance notice to consumers “in pounds and pence” regarding any price increases included in their contract.
According to the watchdog, ‘Confusing’ price increase terms endanger competitiveness, theoretically aiding in cost reduction.
Customers ‘unfairly’ assume future inflation risk on behalf of providers, according to Ofcom.
To address the considerable harm inflicted upon consumers due to this practice, Ofcom has suggested that providers be obligated to conspicuously and transparently display contract costs at the point of sale. Additionally, they should provide clear notice regarding when price adjustments will take place.
It was stated, “This would prohibit providers from including percentage-based or inflation-linked price increase clauses in any new contracts.”
Ofcom emphasized evidence that providers are progressively implementing an annual increase associated with “unpredictable” future inflation and an additional percentage of approximately 3.9%.
Widespread Impact of Inflation-Linked Price Increases
The regulator asserts that the practice is “substantially more pervasive,” which “undermines customers’ comprehension of the amount they will be required to pay.”
According to an Ofcom investigation, two out of every five broadband customers, or approximately eleven million individuals, and more than half of mobile customers were on contracts subject to inflation-linked price increases as of April of this year.
The regulator anticipates that this proportion will increase to approximately three-fifths of broadband and mobile customers by the end of the fiscal year as more contracts of Three and Virgin Media’s clientele incorporate inflation-linked in-contract price increase provisions.
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However, according to survey results, 58% of pay-per-month mobile customers and 55% of broadband customers must know what inflation rates (CPI and RPI) mean.
Although both consumer and retail prices are indices comprised of a basket of consumer products, their respective calculations are distinct.
In the twelve months leading up to October, the UK RPI was 6.1%, while the CPI was 4.7%, as the Office for National Statistics reported.
Ofcom reports that among customers of providers who implement inflation-linked price increases, a mere 16% of broadband customers and 12% of mobile customers are aware of the price rise and capable of distinguishing it from inflation-linked gains by an additional percentage point.
Between January and October of this year, Ofcom received more than 800 complaints regarding price increases, nearly double the number of complaints received during the same period in 2021. Many of these complaints emphasized the ambiguity caused by inflation-linked price increases.
Ensuring Transparency Amid Price Increases
“Additionally, even when individuals do consider future inflation-linked price increases when selecting a contract, they frequently do not fully comprehend them and find it challenging to estimate the potential impact on their payments,” the report continued.
“We have discovered that a limited number of service providers may not have promptly communicated clear information regarding price increases to certain customers, which could pose a compliance risk.”
“As a result of our discussions with the relevant providers regarding these concerns, we have secured refunds for a number of affected customers.”
“We will further deliberate on our outstanding concerns with these service providers, and if required, escalate the matter to distinct, focused enforcement measures.”
Chief administrator of Ofcom Ofcom’s chief executive, Dame Melanie Dawes, stated, “In a time when household finances are under significant strain, customers require prices to be crystal clear.”
However, the sheer complexity and unpredictability of inflation-linked price increase clauses in contracts must be clarified for most consumers and hinder their ability to compare prices.
“Our more stringent safeguards would definitively prohibit this practice, providing customers with the assurance and transparency they require to locate the most advantageous deal that aligns with their requirements and financial means.”
Until February, the regulator will conduct consultations regarding its new regulations; it expects to release its ultimate decision in the spring.
Social tariff participation doubles every year.
The annual Pricing Trends report, also released by Ofcom, unveiled that the utilization of social tariffs, which offer more affordable broadband and phone packages to individuals claiming Universal Credit, Pension Credit, and certain other benefits, has increased by over twofold thus far in 2018.
Individuals utilizing social tariffs rose from 147,000 in September 2022 to 380,000 in September 2023.
Nevertheless, Ofcom discovered that awareness among eligible consumers remains a problem, as only 8.3% of eligible households are informed about social tariffs, compared to 55% of eligible families.
For the first time, we have disclosed subscriber figures for the leading providers of broadband social tariffs.
Citizens Advice’s Matthew Upton stated, “Internet access is a fundamental service.”
“Everything from banking to employment, education, community, and essential government services must be accessible online,” the author writes. Society estranges individuals without internet connectivity.
We are aware, however, that household budgets are under tremendous strain. Alternative options for individuals facing financial constraints in broadband include social tariffs, which offer reduced rates.
Conversely, more than £800 million in support remains unacknowledged as 91% of eligible individuals fail to access this vital lifeline. The ineffectiveness of the present approach has become abundantly clear.
A mandatory high-quality social tariff for broadband must no longer leave people behind. Therefore, the government must establish the standard.
The providers reply
In response to the proposals put forth by the regulator, Tristia Harrison, the chief executive officer of TalkTalk group, cautioned Ofcom against “tying the industry’s hands-on CPI-indexed price inflation” and implored the organization to “immediately review comparable CPI inflation for BT Openreach on a wholesale level.”
She continued, “The connection between the two is self-evident, crucial for safeguarding consumers and competitors alike, and requires attention.”
Regarding pricing adjustments, a Virgin Media O2 spokesperson stated that the organization has “always been clear and transparent” with customers.
The individuals expressed that higher inflation not only affects households but also substantially affects their business expenses, encompassing energy and equipment.
We acknowledge the unwelcome nature of price increases; however, given the unprecedented demand for mobile and broadband connectivity and the ongoing improvement in the value consumers receive from telecommunications services, operators must continue to invest in the dependable and speedy services that consumers depend on.
