Ofcom Asks Broadband ISPs to Halt Price Hikes and Offer Social Tariffs

Ofcom has revealed that 29% of UK households (8 million) – double last year’s 15% – are still having problems paying their phone, broadband and TV bills. In response, they’ve called on major ISPs to reconsider annual price hikes and ordered TalkTalk, Shell Energy, EE, Plusnet and Vodafone to introduce “social tariffs as soon as possible“.

Consumer broadband, phone and mobile services are often considered to be quite reasonably priced in the UK, but there are always those – often in the most disadvantaged groups (i.e. low income, unemployed etc.) – who may struggle with paying their bills. The latter became a much bigger problem during the COVID-19 pandemic, and the current cost-of-living crisis – exasperated by a surge in inflation – has spread this far wider.

Until now, the UK Government and Ofcom have largely responded to this crisis by encouraging more ISPs to proactively introduce and promote low-cost social tariffs, which tend to be available to those on certain benefits. The regulator has also previously warned of further action if providers fail to put more effort into tackling this issue, which they said could include the potential introduction of an industry-wide regulated social tariff.

In response, a number of providers have launched social tariffs or upgraded ones they already had, yet many of those same ISPs have separately continued to hit their regular customers with inflation busting annual price hikes of up to around 10% (examples), with worse expected for 2023. Happily, the take-up of social tariffs has more than doubled in the last 6-months – from 55,000 to 136,000 homes, but that’s still just 3% of those eligible.

In Ofcom’s view, such providers should now “consider whether large price rises can be justified at time of exceptional financial hardship,” but they’ve so far stopped short of making a more significant market intervention. Nevertheless, today’s industry recommendations have clearly become more prescriptive, and this reads like a final warning from the teacher to the sector, before harsher measures are potentially enacted.

Ofcom’s New Recommendations to Industry

➤ The remaining major providers without social tariffs – named and shamed by Ofcom as TalkTalk, Shell Energy, EE, Plusnet and Vodafone – “should introduce a broadband social tariff as soon as possible.” Until they do, the regulator will “expect these firms to waive early termination charges for any customer who wishes to switch to another provider’s social tariff.”

➤ All providers should put a far greater focus on promoting social tariffs. Given almost 70% of eligible customers are not aware that broadband social tariffs exist, they expect all providers to do much more to promote them – as well as making sign-up much easier by providing clearer signposting to these offers on their websites. At present, a lot of related ISPs do not promote such tariffs alongside their main packages and often hide the details away deeper on their website – where they’re easily missed.

➤ Virgin Media (VMO2) has been told to “strengthen its support by offering a superfast social tariff … the company’s current basic offer is an industry outlier and does not recognise the importance customers place on speeds.” This is a reference to the fact that their Virgin Media – Essential Broadband tariff only offers a meagre speed of 15Mbps (2Mbps upload), while most others offer at least 30Mbps+.

➤ Ofcom is also calling on all “major” mobile operators to introduce a social tariff. At present only VOXI (Vodafone’s sub-brand) has launched one and, to be frank, it wasn’t a particularly impressive package.

On top of that, the regulator has today introduced revised guidance on how firms should support customers in debt or struggling to pay. The guidance states that providers should rotate between a range of communications channels – such as letters, email, phone and text – to increase the chances of reaching customers in debt to offer support.

Ofcom also makes it clear that restricting the services of someone who is particularly reliant on them – to push them into paying outstanding bills – should be “avoided or limited, while disconnection should only ever be used as a last resort.” But guidance is not the same as a strict rule.

Lindsey Fussell, Ofcom’s Networks and Communications Group Director, said:

“The cost-of-living crisis is putting an unprecedented strain on household budgets. It is essential that the industry puts its customers first, and focuses on what more it can do to help support them.

This includes a much stronger emphasis on offering and promoting social tariffs, as well as thinking carefully about whether significant price rises can be justified at a time when the finances of their customers are under such pressure.”

As ever, the biggest barrier to the adoption of a social tariff remains the issue of awareness, with 70% of eligible customers not even realising that such packages exist, which is despite all the publicity being given to them over the past year.

The onus is clearly on ISPs – those that offer such tariffs – to do a better job of promoting them, although the government could do more on this front too, as they often communicate directly with those eligible. The calls for a reduced 5% rate of VAT on social tariffs would also help (here), but there’s been no movement on that front (they seem to be too busy crashing the economy with other changes).

However, we should point out that not all providers play the price hikes game, with many smaller players often adopting much more stable pricing and others choosing to keep their prices frozen this year. In addition, the aggressive level of competition in the new market for alternative full fibre (FTTP) networks has actually seen prices come down, rather than go up (here).

Lest we forget that broadband provision also tends to be a business with fairly low per-user margins, which makes it difficult for providers to permanently gift super cheap (loss making) packages to lots of people without putting themselves at risk, or forcing bigger price rises on to other customers. The latter issue won’t be noticeable yet because take-up of social tariffs is so low, but that may change if millions of homes start adopting them.

Finally, Ofcom’s call for all “major” mobile network operators to introduce a social tariff is understandable, but it overlooks the fact that it’s already possible to find some incredibly cheap mobile plans on the wider market (e.g. iD Mobile’s £6 per month plan with 4GB data and unlimited mins/texts). As such, we’re not as convinced that the argument for social tariffs on mobile is as strong.

Once again, it’s worth remembering that the price we all pay for communication services is largely dwarfed by the colossal hikes in energy (e.g. gas and electricity), petrol, food and other bills. If people are struggling to afford even a fairly basic internet or mobile plan, which doesn’t typically form a large chunk of household bills, then they’ve probably got much more serious concerns in those other areas. Social tariffs are thus a relative drop in the ocean, albeit an ocean where every drop counts.

UPDATE 10:03am

We’ve added a comment from the ISPA.

A spokesperson for the ISPA said:

“ISPA members are actively supporting their customers through the cost of living crisis, including by offering broadband social tariffs. The priority now is to improve awareness and take up amongst eligible customers, the recent launch of a social tariff API from DWP will help make it easier for our members to provide targeted support and we expect further changes in the market.

Our members came together with Government to agree a set of joint commitments on treating customers who maybe struggling fairly. However, there is more Government can do to help industry, a VAT reduction would enable industry to go much further in the support they can offer their customer’s during these challenging times.”

UPDATE 11:03am

Now Hyperoptic has reacted.

James Fredrickson, Director of Policy at Hyperoptic, said:

“The pressure is rightly growing on all broadband providers to take social tariffs seriously, promote them properly, and rethink their mid-contract price rise strategy – the trouble is that many providers are addicted to these price rises to protect their revenues. Without a harder intervention from regulators like CAP and Ofcom, consumers risk continuing to be hit by these hikes without the right to leave their contract.”