Broadband Bundlers Hit with Loyalty Penalties of up to £690 a Year

Which? has published yet another “Loyalty Penalty” focused survey of 3,131 members, which found that 40% of customers who signed up to a dual or triple-play bundle (e.g. broadband, phone and mobile or TV) have stayed with the same UK ISP for 10+ years and could thus be paying significantly more than new subscribers.

The issue at hand relates to the very common practice of discounting, which exists across nearly all service sectors and is by no means unique to broadband. In fact even Which? adopts a similar strategy when selling access to its magazine (i.e. they’re selling a 2 month trial for £1 and this automatically rises to £10.75 a month thereafter, unless you notify them to stop).

In practice what this means is that the biggest ISPs tend to offer a reduced price for the first 12 to 24 months of a contract term in order to attract new customers, but after this the price will inevitably rise. Such discounts and special offers are fairly normal for any aggressively competitive service market, although not all ISPs are clear enough about how much you’ll pay post-contract.

Which? have repeatedly campaigned for the Government and Ofcom to take a tougher line (they already are.. but we’ll come back to that) and today’s survey results feed into that effort. Overall the survey claims to have found that customers who sign-up for combined broadband and TV packages are being hit with loyalty penalties of up to £690 a year (in December they used an average figure of £220 a year – here).

For example, Sky customers who had not attempted to haggle were found to be paying £1,050 a year on average. But when Which? analysed new deals currently on the market they found that the cheapest combined package was the Sky Broadband + Entertainment bundle available from £30 a month, or £360 a year, which they say is an “an eye-watering difference of £690 a year” (caveat – it’s unclear if they’re comparing like-for-like).

Meanwhile Virgin Media’s broadband and TV customers who had not haggled were found to be paying an average of £960 a year, while similar BT customers were paying an average of £720. Suffice to say that new customers were once again found to be paying hundreds of pounds less per year than loyal ones.

The impact of this is magnified depending upon how long you remain with an ISP (stay loyal). Which? found that 40% of customers had been with the same ISP for at least 10 years (i.e. 59% on Virgin Media, 30% on Sky and 25% on BT) and 77% admitted to staying with their provider for at least 3 years (i.e. 86% on Virgin Media, 73% on Sky and 65% on BT).

Saving Money

In our view such discounting doesn’t have to be a concern, provided the ISPs make their post-contract prices completely clear; ideally right alongside any discounts (some ISPs do this but others don’t). Equally it’s important to highlight that not all ISPs adopt the same model and many smaller providers, which may offer advanced features (static IP etc.) and better quality, simply charge a set monthly fee that rarely ever changes.

A few providers, such as TalkTalk, also offer an alternative approach by enabling existing customers to re-contract on to a lower price point than their standard rate. Alternatively it’s possible that a bit of haggling could save you a lot of money (see our Retentions Tips article) but few consumers seem to do this. Ideally if you’re happy with the service then negotiation should be your first port of call before switching.

According to Which?, a staggering 90% of those who haggled received a fixed discount and now pay 22% less on average for their bundle than they would have if they had not asked for a better deal. For example, BT customers saved £210 (29%) a year on average, while Sky customers saved £120 a year (21%) and Virgin Media customers £180 (19%) a year.

At this point it’s worth remembering that the Competition and Markets Authority (CMA) recently concluded a “super-complaint” into telecoms providers, which examined how consumers who remain loyal can end up paying “significantly more” than new customers (here) and proposed various changes.

CMA Recommendations for the Mobile Sector

* We do not consider that providers should continue to charge customers the same rate once they have effectively paid off their handsets at the end of the minimum contract period. This is unfair and must be stopped. We support a requirement on mobile providers to move customers on bundled handset and airtime contracts onto a fairer tariff when their minimum contract period ends. [Recommendation: Ofcom].

* In addition, Ofcom should seek to increase the engagement and awareness of consumers by pushing forward with implementing smart data, supporting the development of innovative intermediaries, and tackling low levels of awareness of SIM-only deals. [Recommendation: Ofcom].

CMA Recommendations for the Broadband Sector

* Loyalty penalty problems in this market must be thoroughly investigated. Ofcom should consider a number of possible pricing interventions including tackling broadband legacy pricing and targeted safeguard caps to protect vulnerable consumers, alongside measures to increase engagement such as the use of smart data and exploring the feasibility of collective switching. [Recommendation: Ofcom].

Ofcom are already in the process of implementing or investigating most of the above recommendations. For example, the regulator is preparing to require that ISPs should give customers End of Contract Notifications, which among other things will now also include information on the best deals available to them from their provider (due to be introduced later in 2019).

On top of that Ofcom has also launched a new review of broadband pricing to examine whether loyal (existing) and vulnerable ISP customers are being ripped-off (here), which it said would “examine why some customers pay more than others, and whether vulnerable customers need extra protections to ensure they get a good deal.”

The CMA plans to undertake further work on the loyalty penalty, such as by launching enforcement cases, exploring the feasibility of matching price and survey data and launching a review of the case for changing consumer law in addressing the loyalty penalty. We should know more about the outcome from all this later in the year.