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Questions After UK Chancellor Says CMA May Probe Mid Contract UK ISP Price Hikes

Thursday, Jan 11th, 2024 (8:52 am) - Score 3,440
Jeremy-Hunt-UK-MP-Standing-Outside-Next-to-Lake

The UK Government’s Chancellor, Jeremy Hunt, has, in a new ITV interview with MSE’s Martin Lewis, raised a few questions after he proposed to ask the Competition and Markets Authority (CMA) to probe mid-contract prices hikes by broadband ISPs and proclaimed that the network costs for providers “don’t go up at all.

At this point we’ll assume that, by now, almost everybody is broadly familiar with the issues of mid-contract price hikes by broadband ISPs and mobile network operators (mostly via the largest players as many smaller operators don’t adopt the same approach).

The practice itself has been around for decades, although in recent years providers have increasingly incurred the wrath of consumers by linking them directly to inflation (i.e. increasing their prices each year by nearly 4% plus the rate of annual inflation – CPI or RPI). Inflation has spent the past couple of years being sky-high and that has driven some significant hikes, although it is now rapidly falling.

The problem isn’t just that this has resulted in large price hikes, but also that such policies are often hidden away in the small print and many consumers find them confusing (i.e. they’re not familiar with how ‘inflation‘ actually works or the meaning of terms like CPI or RPI). The fact that CPI/RPI is also a highly variable percentage figure that is difficult to forecast (even the Bank of England sometimes gets it wrong) certainly doesn’t help.

The good news is that the Advertising Standards Authority (ASA) have already introduced new guidelines to improve the transparency of such policies (here). Ofcom followed this last month by effectively proposing to BAN providers from doing mid-contract price hikes that are linked to inflation and percentage changes (here), although that change – if approved – won’t be formally introduced until the second half of 2024.

However, neither the Chancellor nor Martin Lewis seemed to be aware of the looming ban during their interview (it’s never mentioned), which was broadcast as part of ITV’s latest episode of The Martin Lewis Money Show Live on Tuesday. Instead, Lewis asked the Chancellor why he “doesn’t just ban” the providers from doing it. In response, the Chancellor proposed to ask the CMA to probe the practice, which given Ofcom’s proposal would now seem to be unnecessary.

On the other hand, Ofcom’s ban will come too late to prevent the next round of annual hikes (due to be confirmed later this month), even though those rises are expected to be significantly lower than last year (here). But writing to the CMA isn’t going to stop that either, as any probe would be a slow process. The only way to stop the next batch of mid-contract hikes is for ISPs to do it voluntarily, and we’ve seen no indication of an 11th hour U-turn.

Finally, the chancellor also attempted to demonstrate his understanding of how network costs for broadband ISPs work.

Jeremy Hunt, UK Chancellor, said:

“When you’re a broadband provider you obviously do have staff whose costs go up, and some of those costs you have to feed through your bills. But a lot of your costs are actually the costs of a network, which once it’s in place doesn’t go up at all.”

Sorry to burst your bubble on this one, Chancellor, but that is incorrect. We suspect the chancellor may be confusing the physical cost of first-time infrastructure build with the ongoing running costs of a wider network. The latter can of course be affected by a large variety of different factors (backhaul capacity costs, routing/peering arrangements, periodic hardware upgrades, electricity costs, system/software changes etc.), which will also vary between providers, depending upon how their network, suppliers and contracts are set up.

As an example, consider Openreach’s national network. The network access provider has only just announced a large swathe of inflation linked price rises for ISPs at the wholesale level – impacting everything from Ethernet and backhaul charges to construction charges and broadband line rentals. In simple terms, the cost of running your network do, sadly, often go up too.

Admittedly there are sometimes balancing factors too, such as in terms of how – over time – the value of network capacity improves (i.e. getting more Megabits for the same sort of money) and the upkeep costs of more modern networks (i.e. full fibre vs copper) tend to be significantly lower.

On the other hand, ISPs that are more subject to some of Ofcom’s biggest regulatory measures (e.g. automatic compensation and speed codes), may also face higher costs in adapting and keeping to those changes. Suffice to say that, no matter how much these things may vary, it is not only staff costs that go up or change.

As such, it’s important to remember that Ofcom’s ban on mid-contract hikes linked to inflation, once it’s introduced, won’t actually stop prices from rising. Providers will instead have to balance the higher risk they’ll be taking on through their pricing, which could well result in bigger price increases to compensate for greater uncertainty (the longer the contract term, the greater the uncertainty). So in the grander scheme of things, none of this will make services cheaper, only clearer.

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Mark-Jackson
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 X (Twitter), Mastodon, Facebook and .
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Comments
46 Responses
  1. Avatar photo Aled says:

    I personally just think it was a trend popular among the CEO/board types to raise revenues in a slightly sneaky way. Often people don’t pay too much attention to price increases a year away, and only change if a problem occurs or a radical FTTP improvement comes along.

    Once one company had set the trend in the industry, the other commercial players went along with it. I personally think it is sneaky and unethical, especially when another supplier is offering another sweeter deal for 12-24 months at a faster speed, who will also have to install the routers and set the accounts up for you (longer term, it makes more sense to me to encourage people to use the routers and setup for as long as possible, but the companies are almost encouraging people to switch).

  2. Avatar photo Ian says:

    Is it just coincidence that along with this practice of annual Inflation + 4% increases all of the major players are pushing 24 month contracts. Are they hoping to milk their customers with two mid-contract price rises or Early Termination Charges…
    It seems competition isn’t working and all the large suppliers seem to be acting more like a monopoly, It is so sad it takes the government/ofgem/cma so long to see these things and do anything about it.

    1. Avatar photo Fibre Scriber says:

      Really no surprise at all, at least where the Government are concerned, look how long it has taken them to come to terms with the postmasters being accused of fraud, well over ten years, down right scandal. Ofcom are investigating the mid contract pricing now anyway and are supposed to be coming out with their report in the spring, with action to be taken 4 months later, so the Government are a bit late looking at this issue now. Could it be because this is an election year?

    2. Avatar photo Andrew G says:

      All that Ofcom are proposing is that mid-contract price rises can’t be linked to inflation. But they can still occur, so if the contract says “and the price goes up by £50 a month on the 1 April each year” then that’s completely fine with Ofcom. Quite how we ended up with such a poor, ineffectual, sleepy regulator I’ve no idea, but having so nearly one change of minister at DCMS a year for the past 14 years hasn’t helped, nor has having morons like Nadies and Hancock as ministers.

      The reason *unt has made this announcement has nothing to do with any concern for the plebs, it’s simply a desperate grab for pro-consumer news coverage in the run up to the next election. He knows full well that a CMA enquiry would take ages, and the result will be for the next government.

  3. Avatar photo Jeff says:

    A politician in this government who doesn’t know what’s going on or how things in the real world actually work? I’m shocked…

  4. Avatar photo Jammie1408 says:

    Thank God for 30 day plans (no contract) giff,smarty,lebara,

    1. Avatar photo James says:

      Which is all well and good for now. Look how contracts have changed. 12 months was the norm, this then went to 18, then to 24 and now some are 36.

      If everyone stops buying into these and starts using the 30 day rolling, they’ll either nuke the packages, or increase the costs.

    2. Avatar photo Ben says:

      @James I doubt you’ll find (m)any consumer contracts exceeding 24 months, 36 months (or even 60 months) is more common in the B2B space.

    3. Avatar photo yeehaa says:

      @James I remember back in the mobile phone gold rush days in the late 1990s and early 2000s when you couldn’t pick up a copy of the Metro on the bus to be bombarded with adverts from Dial-a-phone and Phones 4U offering the Nokia 3310 for £11.75 a month for 12 months. When 3 launched on 03/03/03 that’s when I first remembered seeing 18 month contracts, and of course once the others saw what 3 were doing, they all duly followed their lead. The first time I remember coming across 24 month contracts was seeing adverts for US mobile providers. I remember thinking at the time, thank goodness we don’t have those here, but low and behold it’s pretty much the norm nowadays.

      In some respect it’s probably better for the environment that people aren’t getting a new phone every year, but like everyone else take issue with the annual increase mid-contact.

  5. Avatar photo Ben says:

    > consider Openreach’s national network. The network access provider has only just announced a large swathe of inflation linked price rises for ISPs at the wholesale level

    I guess the chancellor is of the view that Openreach should not be charging inflation-linked price rises either. That said, I’m not sure if there’s a better alternative — ultimately Openreach will always be a high cost network because they get to harder-to-reach properties but charge everyone the same price…

    1. Avatar photo RightSaidFred says:

      Their build costs have been lower than their competitors, but they’ve been prevented from lowering their wholesale prices as the altnets complained that doing so was anti-competitive given their market dominance.

      OR would be cheaper if the altnets weren’t having their hands held.

  6. Avatar photo Ben says:

    > The only way to stop the next batch of mid-contract hikes is for ISPs to do it voluntarily, and we’ve seen no indication of an 11th hour U-turn.

    TalkTalk are now selling a number of full fibre packages with the first 6 months half price and then fixed prices after that. They say this promotion ends 14 February, but I’ve no doubt it’ll be replaced by some sort of new promotion!

    1. Mark-Jackson Mark Jackson says:

      They’ve long had a paid fixed price option, but it’s worth noting that they haven’t change their core terms:

      https://new.talktalk.co.uk/legal/annual-price-change

  7. Avatar photo Bob says:

    This reads like you support the current mid-contract price rises.

    To be clear, it is not the price rises people have an issue with, per se, it’s the unknown change during a contracted period.

    I pay car insurance, building insurance, contents insurance, a mortgage, energy bills and many other items via fixed-term contracts. We agree a price at the beginning of the contract for the duration of the contract and that price does not change for the duration of the contract. When the contract is due for renewal we can expect to often have to pay more, but I use the open market to make the best decision based on cost and terms of service.

    If telcos want to increase prices at any point and by any amount, that is also fine, BUT that comes at the expense of being able to lock someone into a fixed term contract. It’s very simple and should be implemented as quickly as possible.

    1. Avatar photo Sam says:

      Yea out of all the ways to attack the political class in this country, odd to defend such a horrible practice

      I would even question the premise that the cost to run a network is higher now than 20 years ago

    2. Avatar photo XGS says:

      Wholesale electricity was £20/MWh in 2003. It was quadruple that in 2023. Kit can shift a lot more data per kWh however demand has increased a ton and more kit has been required. Quality expectations are way higher than they were 20 years ago, too: ISPs have become the (video) phone company.

      Automation may be able to reduce staff count but in turn costs money itself in licensing and installation: nothing is free.

      Lowering staffing costs on network operations through offshoring comes with its own costs and, regardless, can’t offshore field engineers. Someone local has to replace cards and clean connectors.

      Networks shift not just data between human beings and machines but between machines. That traffic has risen exponentially.

    3. Mark-Jackson Mark Jackson says:

      I am in favour of a ban on mid-contract hikes, as expressed previously.

      The article simply touches on both sides of the argument to give balance and context. Similarly, I felt it important to dispel the wrongful suggestion that staffing costs are the only ones that rise for an operator.

      As above, and at the risk of repeating myself, understanding an operator’s costs, both across its network and staff, is a very complex and variable area – but costs in various areas do absolutely rise, while also falling in others. Where the balance sits will vary between networks due to many different factors – too many to easily summarise without writing a small book.

      I’m conscious that this doesn’t always fit with the narrative that some prefer, which is that all ISPs are inherently greedy and profiteering elites. But reality is a bit more complex than that. Equally, every new evolution in broadband technology brings a shift that tends to reset the balance (e.g. the cost vs value of ADSL in 2003 vs FTTP in 2023), provided you can or do opt to upgrade.

    4. Avatar photo Sam says:

      Everyone knows how amazingly awful these green energy policies are. Yet electricity is a fraction of costs. Not to mention that fibre uses much LESS electricity than copper

      We are able to automate much more than before, and they still used installers before

      Traffic is higher, but so is the ability to handle traffic

      Many ISPs are able to thrive without this greedy practice. Maybe BT should cut on DEI rather than making the customers foot the bill. If they make contracts expensive up front, it will only accelerate bleeding customers to providers with better prices

    5. Avatar photo Sam says:

      Also obvious point on the installer bit: if you are already in a service, you do not need to pay any more installations … so weird to even bring it up

    6. Avatar photo XGS says:

      Electricity isn’t a fraction of the costs, most ISPs have no involvement with copper either past or present, they receive IP delivered by an access network operator with how it made its way from home/business to them nothing to do with them, they pay per Mbit/s.

      You’ve no idea what you’re writing about to be quite honest.

    7. Avatar photo Bob says:

      That’s a shame Mark, I have just lost a great deal of respect for you. The price rise should apply at the END of the contract. There is absolutely no good reason not to do this. Every other sector manages it just fine.

      No one expects telcos to not increase their prices based on cost, but the time to do this should be when you enter into a NEW contract. The reasons telcos want to maintain this abusive position is if the price rise comes when you are due to renew, you are much more likely to shop around.

      Shame on you and shame on them.

    8. Avatar photo Bob says:

      Sorry Mark. I obviously miss red your reply!

      My point remains minus my criticism of you.

    9. Avatar photo Sam says:

      So you believe electricity is a major expenditure of an ISP? That is so laughable it is pathetic, just like bringing up installers AFTER someone is in contract with a service already installed

  8. Avatar photo Richard Branston says:

    Consumers have a choice of what contract terms to accept.

    My contract with 3 as an example increased only by 3.9% this year – as set out in the contract.

    Likewise, consumers who connect via Smarty, Lebara etc have seen no price increase.

    People are too quick to sign contracts without reading or thinking about the contract terms before doing so.

  9. Avatar photo Flame Henry says:

    What’s the point of a contract if the price varies?

    The benefits are all for the ISP and nothing for the customer.

    This is purely a method of tying customers into long duration (24 month) contracts whilst ISPs suffer no risk exposure if prices rises or service quality falls.

    There is no consumer interest here, therefore they should be regulated. If ISPs can’t handle the uncertainty of changing inflation, offer shorter contract terms and price accordingly. Banks do it all the time. It’s not hard.

  10. Avatar photo RightSaidFred says:

    Vodafone are pulling a fast one with their current offering.

    They advertise £36 per month with mid-contract price rises, but when you look closer their price is £58 – £22 fixed discount for 24 months.

    No doubt their mid-contract price rise will be on the £58 with the discount remaining fixed.

    In practice, if there’s a 10% price rise based on CPI+X%, then that’ll be £63.80 – £22.

    That £5.80 “10%” price rise is as a matter of fact an over 16% price rise.

    1. Avatar photo Matt says:

      From experience with Vodafone, unless they have changed it, it’s based on the discounted price.

    2. Avatar photo DD says:

      I’ve just signed up with Vodafone, going live on 26th January. If anyone could confirm if the CPI is calculated on the £33 or the £58 please that would be helpful, as I would definitely cancel activation! I looked through the contract etc and I don’t think this is clear, so would challenge with Ofcom if I had to, but would rather avoid it. Cheers!

    3. Avatar photo RightSaidFred says:

      Read your pre-contract PDF file on the email they sent you.

      There’s a section that covers your plan, detailing it as the plan cost, then a fixed discount. Later it has a red worded section about CPI rises and provides and example (but avoids specifically mentioning the size of the in contract discount).

      In its example it has a 10.5% CPI + 3.9% (which doesn’t get a separate mention but is included in the example calculation). The figure is £66.35 (excluding your in contract discount).

      There’s zero mention of the discount altering.

      In case you wanted to check the numbers, £58.00 x 114.4% = £66.35

    4. Avatar photo Adam B says:

      Ignore what RighSaidFred wrote. They are wrong. Its based on the discounted price.

    5. Avatar photo RightSaidFred says:

      Not according to their own pre-contract document that they issue.

      I’ve got one, can read, can count.

    6. Avatar photo Adam B says:

      In addition, the numbers RightSaidFred quoted are way out. Expected increases this year are expected to be

      3.4% CPI + 3.9% = 7.3%

      So £36 + £2.63 = £38.63

    7. Avatar photo Adam B says:

      “I’ve got one, can read, can count.”

      Obviously you’re struggling with comprehension 😉

    8. Avatar photo RightSaidFred says:

      Not at all.

      I’m using the numbers they quote as their example (their example uses the 2023 actual figures).

      £58 base cost.
      £22 discount for bein in contract.

      £36 advertised cost.

      Their own example lists 10.5% CPI + 3.9%, and they state this to be £66.35 minus the discount. £44.35 in actual money. £58.00 + 14.4% = £66.35 for those that can count.

      £44.35 / £36.00 is greater than 14.4% rise, it is a 23.2% rise using their own figures.

      That you can’t count is not my problem.

      Again, zero mention of the discount changing with inflation. It stays at £22 throughout.

    9. Avatar photo RightSaidFred says:

      I’ve also not mentioned what I thought this year’s increase would be.

      I know that the CPI rate is lower this year, will be lower again when next set of figures released next week, and now that April’s figures will be based upon next week’s CPI figure (Dec figures released mid-Jan).

    10. Avatar photo DD says:

      So I’ve read the contract at it says:

      Future charges: Each April your monthly plan charge and out of bundle charges will increase by the consumer prices index (CPI) rate published by the Office for National Statistics in January plus an additional 3.9%. The monthly plan charge is the amount payable before any discounts are applied and your price increase will be calculated based on that figure.
      Future charges example: if the CPI rate is 10.5%, your new charge would be:
      Product Number Plan Name New Charge
      (excluding any discounts as per ‘Your Service’ section)
      Package 1 Full Fibre 900 £66.35
      Please note – your monthly price will increase after 24 months, when your in-contract discount expires.

      Live chat says it’s on the discounted price. Hmmmm.. do I cancel? Have a transcript of the live chat…

    11. Avatar photo DD says:

      Live chat and the posts above must be right, as the increase would be higher than 7.3% if they increase the pre-discounted figure.

    12. Avatar photo RightSaidFred says:

      @DD the question is: do you believe your contract or their Live Chat?

      Do you trust that their Live Chat agents even know what the contracts say, or are able to even understand them?

      Their wording is clear, and you’ve posted it yourself…they say that the rise is applied to the monthly plan, and then they define this figure as the figure before discounts get applied. They also then provide example figures that confirm this.

      Back in real world numbers, I do believe that they still work out cheaper than their competitors with their offering, just that it’s quite difficult to say where your monthly payment will be at come April 2025.

      Current forecasts suggest around 3.4% for the December 2023 figure (we’ll find out on 17th Jan) and around 1% December 2024.

      If these turn out to be correct, expect the April 2024 payment to ho to £40.23 and the April 2025 to go to £43.28.

      The April 2024 ends up being an 11.75% rise, with the April 2025 being a further 7.6% rise. Both well above the face value CPI + 3.9% headline rise.

    13. Avatar photo DD says:

      The fact there is this much confusion shows why the practice must end. I’ve signed up to a £33/month deal and I’m expecting it go up to £35.41 in April. If it goes up more than this, then I’ll raise a complaint and go to Ofcom as I do have it in writing the increase is based on the discounted cost.

    14. Avatar photo RightSaidFred says:

      Best case scenario is that they don’t know what their contracts say and then increase prices based on advertised monthly cost.

      Worst case scenario is that they do know what their contracts say, apply the price rises as described, and are absolutely abusing customer ignorance. On a personal level it doesn’t really matter to me; I’m getting a 12% pay rise and a 13-18% annual bonus, so it is peanuts, even so it is properly dubious to manipulate advertising rules in this way.

  11. Avatar photo ISP Contract says:

    Sooner or later, it might change to a 36- or 48-month contract.

    1. Avatar photo Alun Cox says:

      I would have no problem with any contract length provided there was an option to leave without penalty everytime the cost was raised. That would increase true competition.

  12. Avatar photo Homer says:

    I joined sky TV in December 2022 I have had 3 price increase in 13 months 3rd one coming this January and their is 4th in increase in April
    Sky T&c say 1 price increase in 12 month’s April
    Sky contract is not worth the paper it’s printed on they tie you in 18 months but breaker their own T&c to suite them selfies
    you agree on a contract the price should stay the same throughout that time and increase at the end of contract
    complete con dick Turpin without a mask

    1. Avatar photo RightSaidFred says:

      Sky give you 30 days to get out of your contract without penalty if they raise prices more than once during a 12-month period.

      Not exactly sure how they’re defining that 12-month period as I’ve not read their terms and conditions.

  13. Avatar photo james smith says:

    gentlemen some good text there. I believe that Mortguage lenders offer fixed 2 year deals. I’m a renter. Does this mean that your repayment is nailed down for 2 years? If it does then why can’t mobile and broadband do the same?

    1. Avatar photo RightSaidFred says:

      Yes. If you’re on a fixed rate mortgage deal (typically 2/3/5/10 year options) then your monthly payment will be fixed for the duration of that fixed rate.

      You can usually choose to overpay, within limits, without being charged any early repayment charges. Doing this reduces how much interest you pay over the duration of your mortgage.

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