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Do UK Broadband ISPs Need a New Approach to Price Hikes

Sunday, July 11th, 2021 (12:01 am) - Score 4,032
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Price hikes are fairly common amongst all of the largest UK broadband ISPs, which tend to increase what they charge by an average of c.4-6% with every passing year, albeit often via a mix of very different and changeable approaches. But is it time for the industry to start considering a more predictable and standardised approach?

By now many of you will be familiar with the seasonal drill, which starts the moment that email or letter pops through your door or inbox to notify you of yet another annual price hike – often ending in a collective sigh as we all roll our eyes skyward and start to wonder whether the grass might be greener elsewhere.

The differences in price can vary between services, sometimes you’ll end up paying only 1-2% extra for a particular product, add-on or call charge, but other times it can be 10-20%. Despite this, we’ve long observed that, at least for the core broadband and or phone service rental, the average price hike tends to hover around 4-6%.

On top of that, some providers can be crafty, not least by shifting the dates of their annual price hikes forward with each passing year (e.g. a price rise introduced in March 2020 is followed by another in January 2021, instead of March 2021). By taking this approach, some ISPs are effectively introducing more than one price hike on the same product(s) every year, which many would view as abusive.

Take note that the ‘shifting dates‘ example above is NOT the same as that which occurs when a provider increases the pricing of different products at different times of year (e.g. increasing the price of broadband at one point and then TV or call charges at another). Sometimes this is unavoidable due to changes in complex content licensing, contract or supplier arrangements (i.e. retail providers have to deal with some uncertain cost changes too).

Why Prices Rise

As annoying has it can be, there are legitimate reasons for prices to go up, not least because ISPs are frequently adding all sorts of new services (e.g. FTTP), developing new systems, facing higher charges from suppliers and consumers are also gobbling significantly more data every year. However, the latter must be weighed against any fall in the cost of data capacity elsewhere vs any increase in broadband speed from new products etc.

The biggest providers are also under added pressure to adopt all sorts of new Government rules and Ofcom regulations, such as having to cater for the hugely expensive new system of automatic compensation (here), as well as end-of-contract notification letters (here) and a revised broadband speed code of practice (here) etc. Improvements in consumer protection measures are great, yet they’re often anything but free for the ISP. Not to mention all that extra support in 2020/21 for vulnerable users, partly due to COVID-19.

In short, service improvements and catering for rising demand is an expensive challenge, which means that, ultimately, customers will end up paying more. But how ISPs account for this can vary like the wind, with related contract terms often appearing to change more frequently than the dishevelled locks of Boris Johnson’s (UK PM) hair.

Current Approaches

In the past providers were often more inclined to hit their customers with a surprise price increase across a range of products, but over the past few years this has begun to change. The latest pricing trend to sweep the market started in 2019, with BT making an unusually positive move by choosing to link future price increases to the rate of inflation – Consumer Price Index (CPI) – each year (here).

At the time of BT’s announcement CPI was hovering around the 2% mark, but this fell to 1.3% by the time of its introduction in March 2020, which meant that BT’s customers were set to benefit from two things – a) a much smaller annual price increase than usual and, b) a predictable price increase that could easily be written into the provider’s future terms.

One downside of this approach stems from the fact that new or upgrading customers would be aware of any future increases when they joined, which meant they’d struggle to take advantage of Ofcom’s rule for mid-contract price hikes (GC1.6). This applies when an increase constitutes a “material detriment” to your service, such as those that go above the level of inflation (i.e. granting you the option to exit an existing contract penalty free, provided you do so within 30 days of recieving the price rise notification).

NOTE: Ofcom’s mid-contract rule may sometimes also apply if a provider removes a key feature from your package mid-contract, provided it constitutes a “material detriment“.

Suffice to say that 1.3% is well below the usual trend of 4-6% and so we weren’t in the least bit surprised when, in September 2020, BT changed it again to adopt a policy of CPI + 3.9% (here). As a result, BT’s price increase in March 2021 became CPI 0.6 + 3.9 = 4.5% overall (here). BT has since been followed in this trend by siblings EE and Plusnet, as well as rivals Three UK, Vodafone (here), O2, TalkTalk (here) and Origin (here) etc.

By comparison, Virgin Media (here) and Sky Broadband (here) have largely stuck to the old approach of a surprise general price increase, while Virgin Mobile customers only got a regular inflationary increase (here).

The Next Problem

The providers that have just adopted the strategy of CPI + X% could face a problem next year because UK inflation is surging as a result of the economic recovery from COVID-19 (CPIH hit 2.1% in May 2021). Some forecasts have even indicated that it could potentially reach up to 3-4% by around the end of this year, which would occur during roughly the same period as many of those ISPs are setting their CPI pricing levels for the year.

In other words, there’s a risk, albeit currently a VERY tentative one (other forecasts think it’ll stay closer to 2%+), that some consumers could face an annual price hike of c.7-8% next year and if that did come to pass then it would cause a sharp backlash from consumers, and perhaps rightly so.

The Solution?

Admittedly there may not be an easy one-size-fits-all style solution to this issue, although some consumers have suggested that a static annual rise of 4% – 5% could be built into future terms instead of CPI + X%, at least for core services (broadband rental etc.).

However, the aforementioned idea won’t work for every single aspect of service provision (e.g. call charges are much more complicated and can vary between countries) and risks sniffling some innovation, as well as reducing the provider’s flexibility to adapt, such as in the cases of unexpected external change (e.g. connectivity hikes on wholesale charges or new Ofcom rules).

Likewise, some ISPs may be worried about the risk of discouraging new customer if they make the reality of such increases fully transparent to consumers, versus those that prefer to hide such details until it suits them to make an announcement. But admittedly, this is somewhat already a risk via the current CPI + X% approach.

Lest we forget that Ofcom’s recent Fairness Commitments, which are supported by most of the major broadband and mobile providers, requires signatories to “offer customers packages that … have a fair approach to pricing” and ensure “prices are clear and easy to understand.” But the language is ambiguous and doesn’t specifically tackle price hikes, as well as being more aimed at so-called “vulnerable” users.

NOTE: Ofcom’s Fairness Commitments are supported by BT, EE, Giffgaff, O2, Plusnet, Sky, TalkTalk, Tesco Mobile, Three UK, Virgin Media and Vodafone.

Just for fun, we’ll run two snap polls to see what readers think of these approaches.

Do big broadband ISPs need a new approach to price hikes?

  • Yes (83%, 271 Votes)
  • No (9%, 28 Votes)
  • Undecided (8%, 26 Votes)

Total Voters: 325

Given the choice between the following approaches to price increases, which would you begrudgingly favour? Each has different pros and cons, so think carefully.

  • A set rise by c.4-6% each year, provided its stated clearly in the contract (54%, 157 Votes)
  • The old method of surprise annual price rises (could be 2% to 6%+ etc., you never know until the ISP sends its notification) (30%, 88 Votes)
  • The current approach - annual CPI + X% rise (16%, 45 Votes)

Total Voters: 290

In the meantime, there are still some providers around, often smaller players, that don’t play the annual price hikes game or provide useful price guarantees (e.g. AAISP, Zen Internet, iDNET etc.). But the caveat is you might end up paying a bit extra for some of those.

Alternatively, customers could try contacting their ISP directly and haggling for a lower price when a hike hits (Retentions – Tips for Cutting Your Broadband Bill), although your mileage may vary. Just remember that other major ISPs will also be increasing their prices, although this is often mitigated by special offers when you switch.

At the end of the day, consumer broadband ISPs are commercial businesses with the flexibility to set retail prices however they so choose, but it would be nice if they could all be a bit more open and honest about the approaches they take. Some still have a bit of work to do on that front. Likewise, it should not be beyond the bounds of possibility for more providers to offer reliable fixed price plans that do not change during the contracted period.

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By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
Leave a Comment
31 Responses
  1. AQX says:

    The current “surprise” period works since you get ample time anyway to bargain or leave, for example Virgin notified people in both January and February that their increase would take affect March 1st alongside cancelling without a penalty. That is the approach which should be taken by all ISPs instead of this CPI +3.9% which also doesn’t come with a RTC period.

  2. Peter O'Rourke says:

    I can see no reason why any supplier of a service like broadband, or mobile phones, should need to introduce a price rise within the initial ‘contracted period’. Typically, these contracts are for 12-24 month periods. It’s hardly complex math to work out an average monthly price that includes any inflation increase during the contract period. If everyone played by the same rules, Ofcom can help here, it would be much simpler for consumers to understand.

    1. Ben says:

      I completely agree, Peter. For consumer contracts, I think the risk of unpredictable inflation should be borne by the supplier. I think this is perfectly reasonable, and it would mirror the protections that consumers get in other situations (e.g. under The Consumer Rights Act 2015).

  3. alan says:

    I only go for a 12 month contract, that way I am hit with only one price hike.
    When it`s due for renewal look for another New Customer offer.

  4. Essa says:

    While the article covers the general approach to price increases, there is another area it does not cover. While this is not so much of a problem now, I expect we will see this in coming year.

    Example, if the FTTP gets deployed to an area by only one provide, this creates “Monopoly” situation. Customer can always change back to FTTC but if they want to stick to Fiber i can only imagine the price hikes will be considerable and the whole market becomes a massive wild wild west with no limits on monthly cost.

    Just something to consider.

    1. Mike says:

      Note:

      Come September 2023, when Openreach closes the door with “Stop Sell”,
      you will not be able to switch back to FTTC. You won’t even be allowed
      to change your speed profile.

    2. 125us says:

      Mike – Openreach’s prices are regulated and consumers have a choice of ISPs. I don’t think Essa’s point relates to Openreach FTTP.

  5. Steve says:

    I’ve been in the telecoms game for 13 years. The majority of them working for a major player, one of the top 2. Although I understand that sometimes prices need to rise for valid reasons, my previous company clearly stated in one of their yearly results that’s the X% price increase was the reason for the Y% increase in profits. The majority of the time the sole reason of the price increase is to drive profits up.

    1. Me says:

      I would have thought most people would realise this, and it’s all hidden behind the mask of inflation. It’s the exact same with mobile phone contracts despite what anyone says, the increase by inflation plus the increase for price index is all about increasing profits, keeping share holders happy. You don’t need a 5% plus increase every single year.
      Unfortunately these are practices the Tory party fully support. They are all about big profits and the city and share holders, not so much about the consumer.

    2. Nick Roberts says:

      Exactly. Taking the p=ss out of mug consumers

      You’d think there was a market shortage of kit or providers.

      The problem is weak regulation and terms and conditions specified entirely by the provider/supplier, as is the case with all retail industry and unchallenged excess profiteering.

      OFCOM need to get off their arse and devise a “Protected Consumer and fair supply” set of T & C’s that can be imposed where profiteering is occurring contrary to what market conditions dictate.

      A lot of Government uses the “Firm Price” construct as its prefered method of pricing i.e.the supplier undertakes to perform the job against an agreed specification, timescale and price agreed BEFORE the contract term starts and these provisions are unalterable until the contract completes, unless exceptional unexpected events occur.The risk is then entirely upon the provider/supplier and it encourages good management.I’ve seen it used in low and high priced ( £1 billion +) contràcts single and multiple supplies, contract durations up to 30 years and in locations where the dontractor operates at considerable financial and physical risk.

      Sorts the men from the boys.

  6. James says:

    I think provider need to be transparent with how much you’ll pay, if they want to lock you into an 18 month contract for £35 then I either want to pay that price for the full contract or I want a a transparent view when the price goes up and how much. E.g. (so from month 10 then your new price will be £37.25)

  7. Mike Cooper says:

    With a very stable FTTC, I always ping-pong between cheapo 40/10
    providers, who ever happens to have the best intro offer, at end of
    contract .

    I do not like the BT style CPI+X% on copper based services at all!
    The reason for it is that BT is trying converge the cost of FTTC to
    the cost of low-end FTTP when the copper switch off finally happens.

    FTTP is expensive, and I DONT need anything higher than 40/10 which
    I already have.

    I’m PRAYING that an AltNet provider goes past my door, just so that
    I can ditch BT — I’m so emotional about this, I’d take on Virgin
    if it were available (even if I do have to hold my nose)

  8. NE555 says:

    I can understand the reason for a 12-24 month contract for a new service provision. The ISP has to absorb the cost of the Openreach installation/activation charge, supplying a new router, configuration, and customer acquisition costs, and spreads them over the contract period.

    I *cannot* see the need for a sudden price hike at the end of the contract. If anything, the price should go down – just like these days when you get to the end of a mobile phone contract, you’ve finished paying for the phone, and you are just paying for the SIM.

    The only reason for putting the price up is to tempt customers to take another contract, which means that (a) they can’t jump ship if a better offer comes along from a competitor, or if the service is rubbish; and (b) they can be stung for mid-contract price rises.

    There is *some* movement in the right direction. Zen guarantee no price rises ever, and Talktalk will sell you an add-on for about £2 per month which does the same. But in general the market doesn’t seem to be fixing this problem.

  9. Duncan Di Biase says:

    Brillband… we’ve solved this problem for our customers. Watch this space ————

    [admin note: removed spam link]

    1. Tesco Tearaway says:

      Are you a salesman for Brillo pads?

    2. NE555 says:

      Brillband: the mighty broadband, with the world’s first great taste of fish

    3. AQX says:

      No you haven’t.

  10. Anthony Goodman says:

    The only thing that truly annoys me is when your contract is about to end. And you see a deal posted online and they say “that’s only for new customers”. Thus forcing you to leave them or accept paying way over the odds. I am looking at mainly Virgin and Plusnet when I say that. That is what they need to fix. It is not all that do this, NowBroadband are great for honouring massive price discounts to current users at the end of your contrat – or even when your contract is not set to end.

    1. Rich says:

      When we were still with Vermin Media, we used to cancel every year, and move it from my name to my wifes name, then vice versa the next year, to access the “new customer offers”

    2. Buggerlugz says:

      how rediculous of them………I used the cancel option with Virgin every year, waited for a call from retentions and bargained a great 12 month offer. It worked for many years, then they got wise to it and just started reneging on it and charging me whatever they wanted month after month.

      In the end I left because they were so incapable of sorting it out.

      After two years away I rejoined them (out of necessity) this last month, wish me luck people!

  11. Buggerlugz says:

    As annoying has it can be, there are legitimate reasons for prices to go up,

    GREED.

    1. Ig Og says:

      Most people can’t be bothered checking their bills or changing suppliers or haggling with lying ISPs.

  12. adslmax says:

    When there is new provision FTTC or FTTP and you locked into 12 months contract for the service from Openreach but I am bit fed up of ISP locked 12-24 months because of better offer deal price. I learn my lesson, the best offer price isn’t worth it anymore. Once 12 month contract is done your price will be the same on a rolling 30 days as AAISP, IDNet, Zen Internet, Pulse8, UnchainedISP do have that – you pay the same price once your contract has finished (Pulse8 is monthly 30 days only)

  13. Granola says:

    On FTTC here, if FTTP were available I’d expect to (and willingly would) pay more for it.

    I don’t appreciate having to pay more to fund the rolling out of FTTP for others to access. Surely once FTTP is available you pay more and that should be how it is funded, not making people who don’t want/require or can’t get it, pay for it.

    And how does it cost 6-8% more each year for copper to sit in the ground and whatever changes take place, if any, behind the scenes ?

  14. Rich says:

    The idea of above inflation rises is offensive in my opinion, broadband is one of the feeders into the CPI calculation so it’s even self perpetuating.

    Investment in new products isn’t even relevant, as those new products should pay for themselves. Why should I face an FTTC price rise to pay for FTTP elsewhere? I should be paying for FTTP when I upgrade to FTTP. As it is, the first FTTP to reach me will be Cityfibre, who have done it without a subsidy from my current (OR based) FTTC connection, so why should I face price rises to subsidise FTTP for OR?

    Data usage is going up, but the cost of backhaul is going down, so it should work out as a wash honestly.

    Price increases of CPI I can just about accept, but above CPI is sharp practice imo. I am lucky to get a 1-2% pay rise every year, why should my ISP get a 4-6% payrise every year.

  15. james Smith says:

    When many ordinary people are lucky to get any pay rise at all, why whould ISPs get any thing???

  16. CarlT says:

    Wow.

  17. Rollers says:

    My feeling is that the contract term should be just that. Offered to you at a price for a duration, no changes, no additions, just that set price for however long, one year or two years
    I am with Zen, simply because they offer me no price rises. I hate these yearly rises, they are a con to get more money out of people

  18. Ed says:

    The premise of the piece – that price hikes are inevitable – seems questionable. The pricing model for UK ISPs is essentially built on an outdated set of assumptions: a vast copper based network that demanded huge amounts of money (how many vans does BT/Openreach have again?) to maintain, with thousands of little telephone exchanges all needing to be looked after. All of that is history. The new fibre providers are unencumbered with all of that baggage (to say nothing of BT Group’s pension deficit), and therefore have a lot more room for manoeuvre on pricing. Add in to the mix the fact that all of the Altnets along with the incumbents are building like crazy to secure market share, which will inevitably result in a significant amount of overbuild. Then factor in the requirements for duct access that I think are inherent in the Project Gigabit funding regime. Sprinkle over a generous helping of one-touch switching and you have the perfect recipe for a price war as a key phase in the coming consolidation of the UK ISP marketplace. Far from predictable price hikes I’m looking forward to a period where prices fall – fully expecting to be able to buy a symmetric gigabit fibre connection for £25 a month by about 2026.

  19. Roger_Gooner says:

    I’ve been a cable broadband customer for 20 years and there’s been a number of occasions when I’ve had a speed increase without paying more. And Virgin Media in November 2020 announced that their Ultimate Oomph customers would be upgraded from M500 to M600 (that’s 516Mbps to 636Mbps) at no extra cost.

  20. Spurple says:

    I’m afraid the polls are missing one option :

    Stop this madness of annual price rises. Estimate your expected inflation rate and price your service accordingly for the duration of any contract, or sell on a monthly basis. ISPs shouldn’t be allowed the security of locking customers down and being able to raise prices at rates significantly higher than inflation.

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