1 in 7 UK Broadband, Mobile and Mortgage Users Hit by Loyalty Penalty UPDATE

A new “nationally representative” Opinium survey 3,087 UK adults with a mobile, broadband ISP, or mortgage contract, which was commissioned by Citizens Advice, has found that 1-in-7 customers are still paying their providers a “loyalty penalty” (i.e. paying more than new customers) despite cost-of-living crisis.

The issue of “loyalty penalties” is an old one. New customers (i.e. those who hunt around for a better deal and switch providers) 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, which is fairly common among the largest providers and, indeed, in any aggressively competitive market.

In recent years, Ofcom has implemented various changes to tackle this, such as the introduction of the new End-of-Contract Notifications (ECN) system. The ECN system requires all fixed broadband, mobile, home phone and pay TV providers to issue such notifications to existing subscribers at the end of their term, which are designed to keep customers informed about the best deals on their current provider and to boost switching.

Ofcom and the Government have also extracted various voluntary fairness commitments from major telecoms firms like BT, Openreach, Virgin Media, O2, Vodafone, Three UK, TalkTalk and Sky Broadband etc. (here). But there’s some debate about what difference, if any, these have actually made to the “loyalty penalty” issue.

Citizens Advice said they’re concerned that “little meaningful action has been taken” to tackle this issue in the broadband, mobile and mortgage market since 2018’s super complaint to the CMA (here). Regulators found annual loyalty penalties of £800 million for mortgage holders, £451 million for broadband customers, and £83 million for mobile customers paying a bundled contract including a handset.

The charity found that many people, particularly those taking digital communication services, are still paying the penalty and 41% of those have struggled to sleep due to their finances. Furthermore, 28% have had to cut back on everyday essentials (e.g. food and energy), and 65% are worried about keeping up with their bills. But of those paying the loyalty penalty, 18% said it’s too difficult or time-consuming to switch, and just 3% didn’t even know they could.

Dame Clare Moriarty, CEO of Citizens Advice, said:

“The government did the right thing by strengthening its cost-of-living help, but finally fixing the loyalty penalty could put more than twice as much money back in some people’s pockets as the £400 October energy grant.

As we all pull together to weather the cost-of-living crisis, it’s incredibly frustrating to see there are still firms out there that prefer to help themselves than help the people who’re most in need.

The time for piecemeal pledges has passed. Regulators must tackle the loyalty penalty across these three markets – no more excuses, no more delays.”

However, Citizens Advice doesn’t make any specific proposals for how the penalty could be fixed, which is a key point since commercial businesses do need flexibility to compete on price and discounts in such a competitive market. Scrapping the system entirely is one approach, but that would of course hit savvy consumers who save money by switching more often and may be difficult to police.

The charity also seems to overlook not only the existence of Ofcom’s ECN system, but also the relatively recent improvement in the availability of cheaper ‘Social Tariffs‘ from multiple providers. Not to mention the regulator’s forthcoming ‘One Touch Switch‘ (OTS) system, which will make it much easier to switch between UK ISPs on different networks.

One other issue, which still hasn’t been effectively addressed, is that not all providers are clear about how much you’ll pay post-contract when you first sign-up. Sometimes, even after you’ve gone through almost the entire order system, the provider still won’t tell you what the normal post-contract price is. Such details are often consigned to the convoluted small print at the bottom of their product pages (e.g. BT, Plusnet, TalkTalk). However, Virgin Media and Sky Broadband do manage to communicate this early on in the process, so all credit to them.

At this point we should highlight that not all providers adopt the same model and many smaller providers, which may also offer advanced features (static IP etc.), simply charge a set monthly fee that rarely ever changes. A savvy consumer could also try contacting their provider in an attempt to haggle for a lower price (Retentions Tips).

UPDATE 2:51pm

We’ve had a comment from Zen Internet and Giganet.

Paul Stobart, CEO of Zen Internet, said:

“Today’s news that Ofcom should be doing more to protect broadband customers should come as no surprise to anyone in the broadband industry. Unfortunately, the broadband industry has become known for its price hikes; punishing those that are loyal. It’s a game that has been played for years by all the big broadband providers – luring customers in with great deals and then hiking their prices mid contract.

As a broadband business, it is clear to us that providers should not punish loyal customers by raising prices mid-contract – that’s why we have committed to never increasing a customer’s price within their contract period, with our Contract Price Promise. As an industry leader, it is important that we take action against these practices, especially inflation price hikes hidden in the small print, leading to consumers paying more for their services than they anticipated when they signed up.”

Admittedly, Zen can’t completely claim the high ground on this one, particularly after they scrapped their “Lifetime Price Guarantee” pledge for new customers a few months ago (here).

Jarlath Finnegan, CEO at Giganet, said:

“As consumers battle with spiralling living costs at a time when reliable internet access is as necessary as running water and electricity, mid contract price hikes are the last thing households need.

We have set out to challenge this industry norm by honouring both new and long-standing customers with full fibre as standard, set tariffs (regardless of postcode or customer loyalty), and free set up – with no contracts, no exit fees and no mid-term price rises.

By freezing our prices until 2023, and committing to set tariffs permanently, it’s the least we can do to support customers – at this time and in the future.”