Chancellor Calls on UK Broadband and Mobile Providers to Play Fair with Price Hikes

The UK Government’s Chancellor, Rachel Reeves, has today increased the pressure on the country’s main broadband and mobile providers by calling on them to “reinforce” their commitment to “treating customers fairly” by, among other things, confirming that “customers under contract will not face price rises beyond those they signed up for“.

The latest round of pressure has largely emanated from the chorus of displeasure at O2’s (Virgin Media) recent decision to increase their annual mid-contract price hikes beyond the level that customers first agreed when they signed-up (here). Some other providers have also increased the level of mid-contract price rises they apply, but O2 went further by applying this to their existing customers too.

In fairness, O2 did allow customers impacted by this to exit their contract penalty free, which Ofcom acknowledged when expressing their own somewhat weak “disappointment” at the change last month (here). But the situation and the ongoing trend of mid-contract price hikes has caused enough consternation to attract much wider levels of criticism than usual.

For example, the Government’s Secretary of State for Science, Innovation and Technology (DSIT), Liz Kendall MP, recently joined the chorus of displeasure by directing Ofcom to “look at in-contract price rises again“ (here) and to “consider the possibility of adopting a similar regime to those such as insurance, where new and existing customers need to be offered the same deal“.

According to a new letter seen by the FT (paywall), Chancellor Rachel Reeves has now decided to weigh in on the issue by penning her own letter, alongside Kendall, to telecoms providers: “We are asking you to reinforce your commitment to treating customers fairly, including by confirming customers under contract will not face price rises beyond those they signed up for,” said the Chancellor.

However, it’s important to consider that this statement can be read in two different ways. On the one hand, it could be seen as the Chancellor making a call for mid-contract price hikes to be banned. But if we consider that the policy of mid-contract price hikes is often one that customers have to accept when they “sign-up“, then she might merely be calling on providers NOT to increase the rate for existing customers at a later date, like O2 did. In the case of the latter, this might actually be seen as a retreat from Liz Kendall’s earlier suggestion to Ofcom.

The letter then goes on to state that the government would be convening a round-table to “discuss further voluntary action to support telecoms customers”, as well as “areas that government can do more to enable the sector to drive investment in the UK’s digital infrastructure”. Sadly, the full letter has not been published and so it’s difficult to judge the detail.

At the same time, it is still important to recognise that network operators often do still have to increase prices due to costs rising in other areas, such as for service provision, regulation, energy and the need to invest in new network upgrades. At the same time, the level of inflation has remained much higher than it was previously forecast to be, which changes the risk and cost assessment that each provider has to make. But many smaller providers are still able to figure all this into fixed price contracts, and so it’s not beyond the bounds of realism for the biggest providers to do the same.

In general, we continue to think it might be better to simply ban the practice of mid-contract price hikes. Using this approach, telecoms providers could still discount the package price across your first contract term and raise prices for new and re-contracting customers, although it might prevent some other types of offers (e.g. first 1-6 months of service free).

We dare say that consumers would find general price reductions for the first term to still be both easier to understand and much easier to advertise, as well as to compare between providers, if mid-contract hikes were simply banned. Convoluted discounts are a headache when it comes to service comparisons.