Ofcom Tackle UK Broadband ISP Pricing to Protect Vulnerable Users

The UK telecoms regulator, Ofcom, has concluded their review of broadband ISP pricing and agreed industry changes that are designed to protect “vulnerable” consumers (e.g. pensioners) from “loyalty penalties,” which references how loyal customers (those who don’t switch or renegotiate) often end up paying more.

In an ideal world Internet Service Providers would reward their existing customers with benefits, such as price discounts or features that new customers don’t receive. In reality very few do this because our aggressively competitive market is almost entirely focused upon attract new customers, which often results in ISPs offering big discounts for your initial minimum contract term (often lasting for 12-24 months of service).

As a result new customers (i.e. those who hunt around for a better deal and switch ISPs) benefit from discounts that are designed to attract them, while existing customers who reach the end of their initial contract are often hit with a big price rise. This is of course entirely normal for such a market, although not all providers are clear about how much you’ll pay post-contract (minimum term).

According to the regulator, people who sign a new deal with their current provider could typically pay £8-9 less per month than customers who remain out of contract. “This is almost as much as the average saving of £9-10 per month made by new customers signing up to an introductory discount with that provider,” said Ofcom. And a third of those who negotiate a new deal with their provider actually pay less than those on introductory deals.

At the end of 2018 the Competition and Markets Authority (CMA) similarly called for “urgent action” to help tackle such issues and protect vulnerable consumers (here). One part of Ofcom’s response to that has been to develop a new end-of-contract notification system (details), which all providers will be expected to adopt and these include details on the best offers at your current ISP.

Tackling Broadband Pricing

However the Government, which also highlighted the cost of loyalty when proposing their new Statement of Strategic Priorities (here), has called for the regulator to go further. On top of that they’re also in the process of trying to appoint a new Consumer Advocate (e.g. Citizens Advice), which could be granted extra powers to tackle “unfair” practices.

Similarly Ofcom’s recent Fairness for Customers commitment and proposals for a new Fairness Framework has seen ISPs pledge to give customers a “fair deal“, which requires them to supply packages that fit their customers needs and adopt a “fair approach to pricing” (i.e. such prices must be both clear and easy to understand). TalkTalk recently adopted this into some of their own changes (here).

As part of all this Ofcom has managed to pry a range of commitments from the market’s largest providers (see below), which should help to protect consumers and more vulnerable groups (i.e. the ones most likely to suffer as they rarely ever shop around and switch). On top of that the regulator has promised to “explore the case for a new, special tariff to protect low-income households” (this would require new legislation).

Commitments by Big UK ISPs

* BT, Sky Broadband and TalkTalk will allow their out-of-contract customers to get the same deals as new customers, when they take out a new contract (Sky has already implemented this commitment. BT will offer new customer prices to existing customers, albeit only for a limited time period when sending end-of-contract and best tariff notifications).

* The difference that any of Sky’s newly contracted customers will pay when their contract expires is no more than £5 per month. From February, BT will cap the difference that existing in-contract customers pay when their contracts expire – it will confirm the amount of this cap in due course.

* BT customers without access to superfast broadband will no longer pay more than entry-level superfast customers (introduced from mid-2020). And BT will provide a one-off automatic price reduction for vulnerable customers who are currently out of contract on more expensive deals.

* TalkTalk and Virgin Media will carry out annual price reviews with their vulnerable customers to ensure they are on the best deal for their needs, providing automatic discounts where appropriate if customers do not respond.

* BT, EE, Plusnet and TalkTalk will protect out-of-contract customers from above-inflation price rises.

At this point it’s important to highlight that much of the above perceived problem stems from only some of the largest broadband providers, yet not all ISPs adopt the same model. Indeed many smaller providers, which may also offer advanced features (static IP etc.) and better service quality, simply charge a set monthly fee that rarely ever changes.

Alternatively it’s possible that a bit of haggling could save you a lot of money (see our Retentions Tips article) but only about 10% of consumers seem to ever do this (if you’re happy with the service then give negotiation a try first).

We feel a need to emphasise that last point about being happy with your current service because in this market a customer is much more likely to stay loyal if they’re satisfied with their existing service. By contrast a focus on price and discounting runs the risk of encouraging a race to the bottom, which could have other implications (e.g. acting to discourage investment in more expensive but significantly faster full fibre networks).

Lindsey Fussell, Ofcom’s Consumer Group Director, said:

“Broadband customers who are out of contract can make big savings – around £100 a year on average – by picking up the phone to their current provider and signing up to a better deal.

And in future, everyone will be told about the best tariff on offer. Thanks to the commitments we’ve secured from major broadband firms, many customers – including the most vulnerable – will pay less.”

Take note that some of the above commitments by ISPs won’t be introduced until early or mid 2020 (most will coincide with the new end-of-contract notifications from February). Despite all this we still see ISPs that fail to do basic things, such as making their post-contract prices clear (too often these are hidden away in the small print or they don’t tell you about it until AFTER the order process has started).

Gillian Guy, CEO of Citizens Advice, said:

“Our super-complaint, submitted a year ago, found that loyal broadband customers lose over £1 billion a year. Ofcom has today confirmed that finding.

The fact that 43% of all vulnerable customers are out-of-contract means that Ofcom needs to tackle this problem urgently.

While we welcome today’s announcement, it’s unlikely that voluntary, piecemeal commitments from providers will address the sheer scale of the challenge we’ve identified.

It’s vital that we see stronger, faster action in the broadband market before the Competition and Markets Authority report back in December on progress since our super-complaint. If this fails to happen, we expect them to conduct a market study to ensure loyal customers can get a fair deal once and for all.”

Ofcom has also today launched a new proposal, which would require providers to trial new measures to help people shop around (e.g. this could include a collective switching trial to help the “least engaged customers” who may benefit from targeted support to get a better deal). Such a trial would test measures in “real life” scenarios, using a sample of customers. The review is expected to be concluded by March 2020.

The full outcome from Ofcom’s review of broadband prices can be read here and they’ve also published a proposed guide (here), which suggests measures providers could adopt to help ensure they treat vulnerable people fairly and give them the help, support and services they need.

One potential issue here is that Ofcom’s pressure might have a negative impact on consumers who do hunt around for a better deal and switch accordingly. One rather extreme example of this is probably Ofgem’s introduction of a price cap in the energy market for standard tariffs, which among other things resulted in switchers facing less attractive discounts (i.e. they ended up paying more than before to compensate for the cap).