Problems Remain – CMA Updates on Ofcom Loyalty Penalty Fixes

The Competition and Markets Authority (CMA) has issued its annual update on Ofcom’s progress toward tackling the “loyalty penalty” in UK broadband ISP and mobile services, which can result in existing customers paying “significantly more” than new ones. Overall the progress has been good, but not all operators are playing ball.

New customers (i.e. those who hunt around for a better deal and switch ISPs) often benefit from big discounts that are designed to attract them, while existing customers who reach the end of their initial contract can be hit with big price rises.

On top of that not all providers are clear about how much you’ll pay post-contract (minimum term) and some mobile network operators still expect customers to keep paying for a bundled handset even after their contract has ended.

In fairness a lot of this is to be expected in an aggressively competitive market like we have in the United Kingdom, although the CMA and Ofcom spent most of last year trying to inject a little more fairness into the market. The CMA’s update neatly summarises this work and also points to a few remaining problem areas.

CMA Progress Update (Loyalty Penalty Super Complaint)

Mobile:

Ofcom has made progress in this market. It has introduced new rules, which come into effect from February, on end of contract notifications and annual best tariff notification. This will mean that customers will be told when their contract is coming to an end, and shown the best deals available, including SIM-only deals.

As well as this, almost all of the major mobile phone providers have committed to reduce bills for people who have paid off their contracts in full. As part of this, the regulator has asked providers to agree to voluntary commitments to tackle the issue of customers continuing to pay a higher rate once their handsets are paid off.

Whilst these are all positive steps in the right direction, the CMA is concerned that only two providers, Virgin Mobile and Tesco Mobile, have agreed to fully address its concerns about customers still paying a higher rate once handsets are paid off. And major provider Three UK has not agreed to offer any commitments at all (details here).

Ofcom plans to monitor how successful the commitments are and the CMA looks forward to the findings of this review.

Broadband:

Similar to mobile, Ofcom has introduced new rules to ensure customers will be told when their contract is coming to an end and shown the best deals available. Again, these come into effect from February. Ofcom has also secured voluntary commitments in this market.

Some providers have also promised to carry out annual price reviews for vulnerable customers to check they are on the best deal. Others have committed to reduce the difference between the monthly prices paid by new, or re-contracted customers, and those who are have finished their contract (details here). Whilst this is a welcome step, more is required. Ofcom is planning further work and will report in the coming months.

As the CMA Chief Executive, Andrea Coscelli, said: “We’re pleased to see progress has been made in helping to stop people being penalised for their loyalty. But more still needs to be done to make sure that loyal and, in some cases vulnerable, customers are not let down or ripped off. We urge the regulators of the industries under scrutiny to keep up the pace, and we will continue to monitor their progress.”

The CMA also once again called on the Government to give them the extra powers promised last year to “fine companies that we find are breaking consumer protection law.”

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

“We’re pleased the CMA has highlighted the commitments we’ve secured from mobile and broadband companies, which will mean millions of customers pay less for their contracts. And from next month, all providers will be required to send customers alerts letting them know when their contract is coming to an end and what their best deals are.

These measures will make a big difference to customers – particularly those who are vulnerable – and we’re continuing our work to help people get fairer deals.”

End.