Ofcom will tomorrow begin enforcing a new rule that bans UK phone, mobile, pay TV and broadband providers from doing mid-contract price hikes that are linked to inflation (CPI or RPI) and percentage-based changes. The change will make pricing clearer for new customers, but some consumers could still pay more than under the old model.
Just to recap. Until recently most of the major providers, and some smaller players, had adopted a policy of increasing their prices each year by nearly 4% plus the rate of annual inflation (CPI or RPI) – as published in a particular month (usually January or February). But this approach became a problem during the recent inflation surge, which in 2022 saw prices rise by around 9% (here), then over 14% in 2023 (here), before dropping back to around 7-8% (here) in 2024.
The policy also made it harder for customers to exit their contracts penalty free because the providers could argue that they’d already given prior notice of the increases in the small print. On top of that, many consumers found the policy confusing (i.e. not everybody is familiar with how “inflation” actually works or the meaning of terms like CPI or RPI).
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On the other hand, with inflation having fallen back sharply, the practical cost impact on consumers under the inflation-link approach is now much less of a concern. Nevertheless, the earlier situation did eventually prompt Ofcom into proposing a new industry-wide approach, which will finally be introduced tomorrow.
Under the change, providers doing in-contract price rises must now “set these out clearly and up-front, in pounds and pence, when a customer signs up“. Put another way, providers would be able to present their monthly subscription price (e.g. £30 per month), but any mid-contract price hikes must be spelled out alongside and include the dates when they will become applicable.
“Providers must draw this information to the customer’s attention prominently before they are bound by the contract, in a clear and comprehensible manner (including during a sales call or other verbal sale such as an in-store sale) to enable them to make an informed choice. Providers must also set out when any changes to the monthly price will occur,” said Ofcom’s statement.
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In short, this change is more about making package pricing clearer, not cheaper, for new customers. Existing customers will still remain subject to their old contract terms, unless or until they switch to a different provider or re-contract their current package. The policy also only applies to the core subscription price and not optional add-ons, out of bundle charges or call prices. Suffice to say, there’s still plenty of scope for consumer confusion.
The new approach naturally increases the risk for providers that previously adopted the CPI/RPI + 3-4% model for annual hikes, especially those that offer longer contract terms. The provider thus have to balance that greater risk through their pricing (i.e. bigger price increases may be introduced to compensate for greater uncertainty). In some cases, this may even make packages more expensive than the old approach.
For example, the BT Group providers (e.g. BT, Plusnet and EE) and Vodafone were the first to respond by introducing a flat £3 per year increase on broadband and a c.£1-£2 increase on mobile. Such a policy is clearer, but it doesn’t scale well across differently priced packages (i.e. those on entry-level services may be hit harder) and is unlikely to dampen consumer calls for an outright ban on mid-contract hikes – something we’d support.
Speaking of which, if service providers can now predict their increases ahead of time, then it arguably increases the case for simply baking those planned hikes into a fixed contract price. But at this point it’s worth remembering that not all providers adopt the same approach and many smaller ISPs, particularly newer alternative networks (altnets), often already promote packages with simple fixed price terms.
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Suffice to say that if Ofcom perceives that the new approach is being abused or failing to deliver fairness in actual pricing, then we may well be back here again in the future, with the regulator perhaps proposing a complete ban on mid-contract price hikes. But doing that would be more contentious and might invite a complex challenge from the biggest providers, even if fixed pricing is something that a lot of smaller players have been doing for years.
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I noticed earlier that Three have updated their website so it’s closer to what the new Ofcom rules require. They’re still not there yet though; they show the month and year when each price change takes place but I think they are required to show exact dates.
EE has a lot more work to do before Friday. They are still itemising the annual increase as a separate amount, which is not sufficient according to Ofcom’s guidance. They must show the amounts payable with the increases included.
These mobile operators are holding out because they know it’s going to hurt sales telling customers to expect such big increases year on year.
I think this change is bs.
Telcos are now being let free to decide what they want to make from a customer during the term of contracts.
Any respectable company will tell a customer that this is what we will will charge during the contract period and that’s that.
The regulators are just making things worse, year on year, I don’t believe they are regulating in favour of the consumers anymore.
Strictly speaking, they are not free to make whatever they want out of a customer during the contract under this legislation. They are also making it very clear what you will pay during the contract period.
The contract terms are very clear, for example a contract taken out today for 24 months. You’ll pay £30 per month until 31st March 2025, £33 per month from 1st April 2025 to 31st March 2026 and £36 per month from 1st April 2026 till 16th January 2027. £44 per month after 16th January 2027 when contract ends.
These are not unfair contracts, and don’t claim to be fixed price contracts, so the increases aren’t breaking any laws, they are in fact written into the contract and doing exactly what you say a respectable company would do.
Ultimately, if people want a fixed price contract, they are available from some ISPs, but expect to pay more for them.
How? They are making them be more honest about how much the increase will be rather than having to guess.
Plus people can vote with their wallets, not happy then don’t buy, as simple as that
It’s stricter than the old rules in terms of how the telcos can behave.
Under the old rules, your contract could be written as “you pay £100 up front, then £50/month. In April each year, we will increase your monthly payment by the highest of RPI+3.4%, CPIH+3.5% or CPI+4.8%, and we will increase your payment by £25/month in January 2027. After your tie-in period ends, we will give 60 days notice of price rises, and you can leave with 30 days notice.”. You then have to work out what that actually means in terms of real-world price increases, and you take the risk if any of those three measures of inflation are higher than normal.
For reference, at the moment of writing, RPI is 3.5%, CPIH is 3.5% and CPI is 2.5%, and in 2024, RPI has peaked at 4.9%, CPIH at 4.2% and CPI at 4% and the Bank of England is supposed to use monetary policy to hold CPI between 1% and 3%, with a target of CPI=2%. Note, too, that if I look at the last 5 years, RPI peaked at 14.2%, CPIH at 9.6% and CPI at 11.1%. As a result, predicting what you’d actually be signing up for is hard.
Under the new rules, they have to tell you up-front, at contract signing time, the amount of money they will take each time for your contracted payments, making it become something like “you pay £100 up front, then £50 on the 20th of January, February and March 2025. On the 20th of April 2025 and then monthly on the 20th until after payment is taken on 20th March 2026, we will take £51.50. We will then take £53 on the 20th April 2026 and on the 20th of each month until the final contracted payment is taken on the 20th January 2027. After that, your payment will be £78 on the 20th of each month, and we will give you 60 days notice of price rises other than the ones in this contract. You can leave with 30 days notice, as long as notice is given no earlier than 21st January 2027.
And also note that in both cases, they are allowed to reduce the payment from the contracted level if they want to. There’s nothing stopping a telco putting a 10% annual rise in the contract (making it £55 in April 2025, and £60.50 in April 2026) and then telling you as the dates approach that they’re changing the price in your favour (say to £53 instead of £55, or to £58 instead of £60.50).
BT have abandoned their plan to use the old street cabinets to charge EV’s. Only one cabinet was converted and they have now pulled the plug on the program
How is this connected to the article?
I own a small ISP, whats frustrating is suppliers we buy on a b2b model, which we supply on a B2C model have 2 different policies. If Talk Talk (PXC) can increase our net cost per annum on a CPI + model, then we have to bake in our increase risk.
Ofcom once again fail to understand the wider picture. CPI + is a far more reliable model, its linked to inflation after all, something every consumer and business has to deal with and in all fairness has come to accept over the years. With it now being lower we’re back to where we was.
Ofcom are not thinking wide enough about the impact which has resulted in this being a bit of a mess all round. its not benefiting consumer, creating work for all ISPs and it will result in change in the future.
Sounds like 12 month contracts are your friend.
Are you one of those ISPs that do a mod-contract price rise? Because if you are, then rest assured I won’t ever be using you.
A contract price should be over the period of the contract. I don’t expect it to change during that period. You sell me a 12-month contract? It stays at that price over the period of the contract. Your costs go up? Tough. Factor that into your pricing when you sell me the contract.
My mortgage doesn’t go up every year because I have a fixed rate that is set to run for several years. I expect I to er contracts to be the same – just like it always used to be! This is not an unreasonable ask from consumers.
Disclaimer: the company I work for does this and I really wish they wouldn’t.
Here’s a tidied-up version of your message:
Hi Bob,
You’re absolutely right—we don’t want to implement increases, but it’s important to consider the predicament suppliers will face.
If we get hit with additional costs, we’d typically pass them on. However, with this new model, that’s no longer an option, so forecasting becomes critical in case this happens.
This is why many players are setting a fixed price now and adding an annual increase, like £3 per year, to protect themselves against potential supplier-driven increases. Ironically, this approach will likely cost consumers more overall, whereas we’ve always operated with a straightforward pass-through model—which we can no longer maintain under these changes.
The new mechanism has not helped at all. We’re operating under a B2B wholesale agreement while selling in a B2C environment. ofcom have become trigger-happy here due to high inflation following the pandemic, but in reality, things are stabilising. I agree with their principle but they clearly dont get the wider impact.
It’s like whack-a-mole. You stop shock price rises and ISPs are now just tying people into longer and longer contracts. It used to be 12 months, then 18 months but 2 years and now 3 are more common place.
If ISPs etc. want to put the price up every year by inflation…
(and a percentage on top, what’s that about?)
…just have 12 month contracts only like they used to do. Simple. It just seems they want their cake and eat it.
Sky still just say prices may rise
Why can’t consumers be allowed to quit fixed-term contracts without incurring penalties, or be able to have shorter broadband contracts without having to pay exorbitant fees for short-term contracts, if they can leave fixed-term energy contracts for free?
So why does Gigaclear still say:
“18-month minimum term and then standard list price thereafter. Prices may change during the contract.*”
With that asterisk at the end that doesn’t link to anything and there isn’t any obvious footnote on the page for what the “*” means.
Looks like many still have to make changes.
Inflation is real
People want long term contracts to not pay for connection fees, install fees and routers upfront. This is why the contract usually exists and why people cant just ‘leave’ without penalty.
A long term is fair for this exchange, it should be a fixed discount on term fees such as 50% off term rentals or a fixed amount of £10 per month to exit early imo.
Steffan,
Interesting to hear from a small ISP point of view. However, it wasn’t so long ago that 12 month contracts were the norm, and that prices were fixed for that 1 year period. I never paid for routers or connections.
It looks like the ofcom ruling actually makes it more expensive for consumers. They should have banned the practise altogether!!
Example. My current Virgin media contract is £30.50 per month and is priced to increase by RPI+3.9%. Say RPI is 3% this year. The total increase would be 6.9% or increase in price to £2.11. New virgin contracts are now increasing the price every april by £3.50 so in this case its a 10% rise for this contract, larger % increase for cheaper contracts and small % increase for more expensive contracts..