New UK Petition Calls for “Loyalty Tax” on Broadband Contracts to be Banned
A new petition, which has already been signed by over 56,200 people across the UK, has called on Ofcom to tackle the issue of “loyalty penalties” by changing the rules so that existing broadband ISP customers can access the same offers as new ones and that any end-of-contract price increases be “limited to a maximum of 30% of their current contract price“.
The issue of “loyalty penalties”, which are not to be confused with the similar debate over annual mid-contract price hikes, is an old one. In short, new customers (i.e. those who hunt around for a better deal and switch ISPs) 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 huge price rises.
The practice is fairly common among the largest providers and, indeed, somewhat normal in any truly competitive market. In recent years, Ofcom has implemented various changes to tackle this, such as the introduction of more Social Tariffs and 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 is designed to keep customers informed about the best deals on their current provider and to boost switching.
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On top of that, the regulator has also made it quicker and easier for consumers to switch providers via their new One Touch Switching (OTS) system, and they’ve fostered a new Fairness Framework (guidelines), although the latter doesn’t seem to have had much of an impact upon this particular issue. The new Change.org petition thus represents another attempt by consumers to resurrect the issue of loyalty penalties.
The argument is a valid one, although finding a solution remains challenging, and scrapping discounting entirely would of course hit savvy consumers who save money by switching more often or haggling (Retentions Tips). Not to mention that it may be difficult to police, given the variety of different ways in which consumer packages can be constructed, and could make it harder for some smaller providers and new altnets to compete against the incumbents.
On the other hand, there’s certainly something to be said for fostering a more simplistic approach to pricing, which would make comparisons between different providers and packages a lot easier and potentially fairer all-round. The current approach does of course rely on the fact that a good proportion of customers will, at the end of their first contract, choose to remain with their ISP – even though prices may rise. As above, this means that scrapping the approach could result in higher prices for new customers.
One other issue, which still hasn’t been fully addressed, is that not all providers are clear about how much you’ll pay post-contract from the product summaries on their front page. Sometimes, even after you’ve gone through the entire order system, the provider still won’t tell you what the normal post-contract price is – unless you dig into their small print. Ofcom and the ASA’s recent changes around mid-contract pricing (here and here) may indirectly help to change that, but the results are still a bit hit-and-miss.
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At this point we should highlight that not all providers adopt the same model and many smaller providers, which may also offer a selection of advanced features (static IP etc.), simply charge a set monthly fee that rarely ever changes.
Do you agree that existing broadband customers should be able to access the same offers and new ones?
- Yes (91%, 303 Votes)
- No (7%, 22 Votes)
- Undecided (3%, 9 Votes)
Total Voters: 334
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, BlueSky, Threads.net and Linkedin.
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Oh boy, Ofcom wont like this as I think their mantra is all about heavy switching between ISPs, they are obsessed with it, obviously something like this would reduce switching to a crawl as it would be achieved by less attractive switching deals. I expect they will ignore it if they can.
Some people are happy to lose the discount when the minimum term expires and be on a rolling contract, some people are happy to recontract/switch, and some people want to have their cake and eat it as well.
…and some people want to self-harm… we don’t care much for them or whatever mental health condition they’re suffering. I think they should regulate such matters and protect the public from these very rich corporate greedy lot.
Hmm. An AltNet has just come to my area and is offering genuinely outstanding offers to encourage uptake (e.g. 12 months free on a 24 month commit, then £26 per month for the remainder of the commit). Is it reasonable to force the network to offer this to existing customers (in other areas) too?
It feels like the market is _mostly_ working, although there may be some areas with monopolies which require closer regulation.
I don’t agree the post-contract price should be limited to 30% which is another way of saying the discount for agreeing to a contract can’t be more than 23%. However, I do think any offer the ISP makes to new customers should be available to existing customers on the same terms. After all you’re still committing to the same 12 to 24 month lock in period and on top of that there is no additional cost to the ISP as there is with a new customer such as sending out a router or paying the migration or installation cost. Seems like a win-win to me.
The ‘unfairness’ as far as I am concerned is linked to the taking out of a new contract. I am not too bothered about end-of-contract increases as I retain the right to switch ISPs without penalty. If I enter into a new contract with a minimum term then I do believe that it should be on the same terms as that offered to new customers.
All companies know that amongst their customer cohort there will be ‘stiction”: ie, a reluctance to move ISPs even when there is an end-of- contract increase. Many ISPs use this to their advantage .
Insurance companies are no longer allowed to price their products unfairly — and the sky didn’t fall in
This is a very bizarre perception. If anything insurance now costs crazy amounts, it went up by 80%.
The “cost of living” was being touted constantly for the past 3 years but the reality is that more costs have been added. Insurance premiums being one of them and can’t even imagine how horrible the upcoming budget will be with everyone getting taxed across the board
We get so much consumer value and effectiveness from Ofcom, I think we need OfOfx
Has any independent body ever assessed the values:costs and ratios to consumers and industry from Ofcom (shorten the m to n)?
Independent bodies? Lol
Wait until ofcom get the power to control what you can say on the internet. In Ireland people are being arrested for calling out crossdressers
Pity it is a change.org petition and not a parliamentary one (to force a discussion in Parliament)
I wonder if they’ll screw this up too, look how badly they messed up the annual price rises rules, my increases on both my mobile and fttp are both higher than if they’d just been left as an RPI percentage, with annual rises of over 10%!
I can’t get over the lack of competance they demonstrated with this, how on earth can they justify their position / continuance of roll / fit for purposeness as a ‘regulator’, too liitle, to late and incompetant at that, or am I missing something?
There are some really good smaller ISP’s which don’t increase at all post contract. Search around. It is often the smaller companies that give much better service, actually talk to their customers and understand their issues. All that and not raise prices post contract.
My only option for fast internet is Virgin Media, so at the end of contract I have to haggle and threaten to leave, I usually get a deal I’m ok with but some years it’s very hard work
We also need to ban the “we put your price up by £3 every year” bullshit that they don’t need to do other than greed
Or we vote with our feet. I haven’t had a price increase on my broadband (Zen, then IDNet, then Swish Fibre) or mobile phone (1pMobile 30 day bundle) since 2020.
Easy way to solve this is to vote with your wallet and not use them providers
Some people will call national insurance and the bbc tax as not taxes when they are pretty much forced but then a voluntary decision to stick to a private company they call it a tax
In an ideal world, all takers of a service from a particular supplier should be charged the same price. The service from a supplier doesn’t change for the individual customers in any particular period, so why should the price? And the continuation of a contract beyond the agreed term (whether committing to another 24 months or rolling) should surely be cheaper (or at least no dearer), as there are no set-up or equipment costs to consider (usually).
Picking up on the insurance aspect, the FCA has tried to impose a solution to the loyalty penalty. It works to some degree there, but it seems to have led to a practice called brand stacking, where you don’t get the cover you might have expected as things are split into a multitude of tiers. The law of unintended consequences. So there is an argument it hasn’t really worked. Against that, you can choose exactly what you are insured for more easily by, say, not having windscreen insurance on the policy. So then again, there may be an argument it has worked. But I’m not sure that model would carry over to the BB market.
The thing is, if price discounting were not possible there would ultimately be reduced (possibly tending to no) incentive to move between suppliers. Bigger suppliers with lower cost bases would ultimately end up getting more customers, not least because, at least initially, more customers should lead to bigger profits and give more scope for lowering prices. But of course, a strong, varied market then descends into a restricted ‘market’ and bigger profits likely don’t mean lower prices. It’s a difficult, if not impossible circle to square.
I do like the idea of the switching offer being available to current customers who commit to a new term.
To me, part of the problem is one of contract length. Ban any contract longer than 12 months.
NOW allow you to either pay £60 for the router and go on a rolling contract, or sign up for a longer term and get the equipment for ‘free’. I think this is an excellent choice which other ISP’s should also offer.
I’ve never had an issue getting the ‘new customer’ price at the end of my contract.
Both Sky, my current provider and Plusnet before them were happy to match their new customer price when I gave them a call at the end of my contract. The only reason I switched was because Plusnet weren’t offering FTTP at the time and Sky were.
The only thing I may have missed out on over the years has been a few vouchers or cashback via 3rd party sites but in my experience, they’re often more hassle than they’re worth trying to claim.
We all know what happens when Ofcom interferes the laws of unintended consequences hits and we are worse off
Just seems like incompetance, covered by ‘unintended consequence’, as a regulator they should be capable of dictating well considered ‘change’, blocking ‘loopholes’ intended or not, also some basic maths. Any fixed ammount penalises lower cost service consumers and benefits expensive service ~500mbs. It was hardly ‘inconceivble’ or difficult to identify this in first consideration, unless you have some alterior motives or are incompetant, was it? How on earth they’re allowed any more than cpi beggars belief, and if the excuse is for investing in infrastructue improvements then everyone subject to any cpi+ increse should be a share holder and receive dividends…, noting of course that as ataxpayers are already funding ‘improvements’via digital britain/ project gigabit etc.
Seems to me that the ASA should be applying themselves to Ofcom, or change their name to OfIncom, there should be nothing that could be missinterpreted as com’petence.