Ofcom’s End-of-Contract Notifications Deliver Broadband Savings

The UK telecoms regulator, Ofcom, has today given itself a pat on the back after its research found that 1.3 million broadband ISP customers had secured better deals as a result of their new End-of-Contract Notification (ECN) system. Overpayments by mobile customers also dropped by £100m due to new rules on handset bundles.

The new notification system (sent by text, email or letter), which was designed to help tackle the so-called “loyalty penalty” by keeping customers informed about the best deals and encouraging switching or moving to a better package at the end of their contract (otherwise the price would normally rise, often significantly), was officially introduced in February 2020 for all fixed broadband, mobile, home phone and pay TV providers.

At around the same time, Ofcom also moved to tackle the problems being caused by bundles of both mobile handsets and tariffs (airtime contracts), which in some cases were continuing to charge consumers for the handset cost even after the minimum contract term had ended (here). The only major mobile operator NOT to sign-up was Three UK.

Enough time has now passed that the regulator can finally assess the impact of these changes, and the results appear to be broadly positive.

End of Contract Notifications

In terms of the notification system, Ofcom found that 62% of broadband customers in 2020 – those who were nearing the end of their contract – either signed up to a new deal with their current ISP, or switched to a new provider when their existing deal ended. Crucially, this is up from just 47% in 2019.

The number of broadband customers who were deemed to be “out of contract” also fell from 8.7 million (40%) in 2019 to 7.4 million (35%) in 2020 (i.e. 1.3 million customers were deemed to be better off). On average, the regulator claims that out-of-contract customers pay around £5.10 per month more than they need to.

“There is evidence that indicates that these timely prompts from providers are working. In our research, two thirds of customers who were sent an end-of-contract notice recalled receiving one. Of those, 90% found it helpful and a fifth reported that they were prompted into action they would not have otherwise taken,” said Ofcom.

The regulator notes that the average prices paid by broadband customers also fell over the same period, from £39 in 2019 to £38.10 in 2020, while average speeds continued to increase. However, there’s still work to be done as some ISPs have a greater proportion of out-of-contract customers than others.

The standout above is clearly Virgin Media on 52%, but in a lot of areas they’re still the fastest broadband network, which makes it harder for consumers to switch away. Nevertheless, rising competition from gigabit-capable rivals will steadily change that picture. Oddly, TalkTalk were the only ISP to show an increase in their out-of-contract base, and it’s not entirely clear why (possibly because their out-of-contract prices weren’t as high as some of their rivals).

Mobile Customers

The regulator found that mobile customers on bundled contracts (i.e. paying for a handset and airtime plan together) were likely to take a new deal when their existing one expires, with just 11% of these customers now considered to be out-of-contract. Some 76% of mobile customers on bundled tariffs – those who were nearing the end of their contract – also took action to shop around and secure a new deal (up from 70% in 2019).

Furthermore, the amount that bundled out-of-contract mobile customers overpay, relative to customers on like-for-like SIM-only deals, was found to have more than halved (from £182m in 2018 to £83m in 2020).

Cristina Luna-Esteban, Ofcom’s Director of Telecoms Consumer Protection, said:

“Prompts from providers are turning into pounds in people’s pockets. It’s great to see more people shopping around and saving money since we took action.

But millions are still potentially paying more than they need to. We’ve made it easier to grab a better deal, so it’s worth taking a few minutes to check what’s out there.”

As for “vulnerable” broadband customers (i.e. pensioners, those on benefits etc.), specifically those who pass the end date of their initial deal but now have greater protection from higher prices. Ofcom found that, on average, these customers pay around £2.30 per month more than their provider’s average price for their service – a significant reduction from £4.40 in 2019.

We should point out that a good number of ISPs have now launched better social broadband tariffs for those on benefits (e.g. BT, Virgin Media, KCOM, Hyperoptic etc.), which make them much more attractive. But as we’ve previously reported, there are still problems with consumer awareness of such options and weak advertising by providers.

No doubt there will be further improvements in today’s picture once Ofcom’s new One Touch Switch (OTS) process for customers of fixed line phone and broadband ISPs is introduced (details), which should make it easier for consumers to migrate between providers on physically separate networks. The downside is that, due to the technical complexity and costs involved with introduce this, it won’t be enforced until April 2023.