Ofcom Protects UK Consumers from Mid-Contract Price Hikes by ISPs

The communications regulator has today announced new measures that will make it much more difficult for broadband ISPs, mobile operators and phone providers to impose mid-contract price hikes without also giving consumers a clear way to exit their existing contract (penalty free).

At present Ofcom’s existing General Condition 9.6 (GC9.6) rule requires ISPs to give customers a minimum 1 month of notice concerning changes to their contractual terms but this includes an exception for where a provider agrees that the price increase “would be likely to cause material detriment“. However the definition of “material detriment” has been left somewhat open to interpretation and some providers have been known to exploit this.

Sadly Ofcom has already ruled out a complete ban on mid-contract price hikes, which it claimed wouldn’t be “consistent” with EU law, and instead the new measures are being promoted more as “guidance” than a strict rule. But the implications remain very clear.

Ofcoms New Guidance on Mid-Contract Price Hikes

* Ofcom is likely to regard any increase to the recurring monthly subscription charge in a fixed-term contract as ‘materially detrimental’ to consumers;

* Providers should therefore give consumers at least 30 days’ notice of any such price rise and allow them to exit their contract without penalty; and

* Any changes to contract terms, pricing or otherwise, must be communicated clearly and transparently to consumers.

Providers have been warned not to try and fiddle the system by reducing the call, text and or data allowances included in a customer’s monthly subscription price. The regulator made clear that it would “regard such action as a price increase – as consumers would be getting less for the same money“.

On the other hand operators would still be free to hike charges related to exceeding a monthly usage allowance, premium rate services or non-geographic calls and directory enquiries.

Claudio Pollack, Ofcom’s Consumer Group Director, said:

“Ofcom is today making clear that consumers entering into fixed-term telecoms contracts must get a fairer deal. We think the sector rules were operating unfairly in the provider’s favour, with consumers having little choice but to accept price increases or pay to exit their contract.

We’re making it clear that any increase to the monthly subscription price should trigger a consumer’s right to leave their contract – without penalty.”

Finally, greater transparency has also been introduced into the process, which will require providers to ensure that letters or emails about contract changes are clearly marked as such. Notifications of price increases must also be clear, easy to understand and, where relevant, information about the customer’s right to exit the contract should be clearly explained upfront (e.g. on the front page of a letter or in the main email message).

The new Guidance, which is set to be introduced in three months’ time (late January 2013), is not without its critics. Vodafone in particular has previously warned that it could result in providers charging more for their services at the outset as this would be the only way to mitigate situations where suppliers, such as BT, hike their charges to the operator.