Is it the end of mid-contract price rises?
Ofcom is forcing UK telecoms companies to clearly promote mid-contract inflation-linked price rises. Is this the end of “confusing” plan changes, or do consumers still face increasing bills for connectivity?
Ofcom is delivering an early Christmas present, as the regulator has announced plans to force the UK’s telcos to be completely transparent about any inflation-linked mid-contract price rises for broadband and phone contracts.
The regulator argues in a new consultation report that the practice is “confusing”, not providing sufficient certainty about the prices customers will pay due to “uncertain future inflation” ahead of the next expected price rise in April 2024.
The UK’s telcos currently raise their prices each April by the Consumer Price Index (CPI) figure plus 3.9%. If the CPI rate is negative, the price rise is typically capped at 3.9%. As of this April’s increase, four in ten broadband customers and over half of mobile customers were on contracts subject to these terms. Ofcom’s report estimates that this will grow to six in ten broadband and mobile customers next year.
This follows new Advertising Standards Authority guidance on the presentation of mid-contract price rises in ads, which came into effect from 15th December, dictating that “information indicating the presence or possibility of a price rise [must have] equal prominence with the price claim.”
UK interest rates are unlikely to be hiked again in 2024, and The Bank of England expects inflation to return to “normal levels” – albeit at a slow rate – of around 2% by the end of 2025, though independent analysts expect it to hover above this for a few years.
Even now, interest rates are not high; the recent spike in rates just feels high following nearly a decade of low rates following the financial crisis of 2008. It’s worth remembering, however, that a falling inflation rate doesn’t mean a fall in prices – just that prices are rising at a slower pace.
Ofcom has proposed that any price increases would have to be set out “prominently and transparently” in advertising material and at the point of sale, clearly stating “in pounds and pence” any changes to prices that will occur during the contract, stopping service providers from including price rises based on the inflation rate.
If the proposal is approved, marketing collateral for broadband and mobile contracts could look something like this:
BT was the first to introduce these rises in 2020, and since then most service providers have adopted inflation-linked rises, undermining competitiveness and leaving customers little recourse in avoiding near-certain increases.
A combination of inflationary illiteracy in consumers and ongoing global financial uncertainty mean that Ofcom is keen on simplifying pricing promotions as much as possible; certainly, this new policy would stop customers from having to become amateur economists when weighing up new mobile and broadband contracts. In a poll by USwitch, 40% of respondents said they were concerned by a lack of certainty over how much prices would increase, and 87% wanted to be able to leave their contract in the event of a mid-contract price rise without penalty.
Why didn’t Ofcom suggest an outright ban? A policy of fixed charges for the duration of the contract was considered, but it was decided that this may make it “necessary to restrict introductory discounts”, which, it was determined, would damage competitiveness.
Indeed, while some outlets have touted this as a “ban”, it’s worth noting that this wouldn’t prevent companies from increasing their prices during the contract period completely, only that they would have to be laid out to customers up-front – a mid-contract price rise that’s advertised is still a price rise, after all. This does nonetheless mark a considerable step towards pricing transparency for customers, even if they still face high connectivity bills.
Ofcom looked into whether telcos were complying with previous rules between March 2021 and June 2022, and found a few instances where “sufficient information about price variation” or the right to exit their contract without charge wasn’t provided, and those affected have since been refunded.
Ofcom is currently seeking public input on the proposed rule until 13th February 2024, and plans to publish a final decision in the spring. Any changes would come into effect four months later – after the next round of price increases in April. Whether any telcos see fit to amend their pricing ahead of this remains to be seen.
Update [16/01/2024]: In a blog post, Marc Allera, CEO of BT’s consumer division, announced a move away from mid-contract price rises following Ofcom's advice: "starting in early summer, we will introduce a pricing model consistent with Ofcom’s approach, moving away from % figures and CPI."
Update [30/01/2024]: Consumer advocacy group Which? have called on telcos to ditch "outrageous" mobile and broadband price rises due in April.