{"id":27599,"date":"2021-07-11T00:01:06","date_gmt":"2021-07-10T23:01:06","guid":{"rendered":"https:\/\/www.ispreview.co.uk\/?p=27599"},"modified":"2021-07-11T06:21:09","modified_gmt":"2021-07-11T05:21:09","slug":"do-uk-broadband-isps-need-a-new-approach-to-price-hikes","status":"publish","type":"post","link":"https:\/\/www.ispreview.co.uk\/index.php\/2021\/07\/do-uk-broadband-isps-need-a-new-approach-to-price-hikes.html","title":{"rendered":"Do UK Broadband ISPs Need a New Approach to Price Hikes"},"content":{"rendered":"

Price hikes are fairly common amongst all of the largest UK broadband ISPs, which tend to increase what they charge by an average of c.4-6% with every passing year, albeit often via a mix of very different and changeable approaches. But is it time for the industry to start considering a more predictable and standardised approach?<\/p>\n

By now many of you will be familiar with the seasonal drill, which starts the moment that email or letter pops through your door or inbox to notify you of yet another annual price hike – often ending in a collective sigh as we all roll our eyes skyward and start to wonder whether the grass might be greener elsewhere.<\/p>\n

The differences in price can vary between services, sometimes you’ll end up paying only 1-2% extra for a particular product, add-on or call charge, but other times it can be 10-20%. Despite this, we’ve long observed that, at least for the core broadband and or phone service rental, the average price hike tends to hover around 4-6%.<\/p>\n

On top of that, some providers can be crafty, not least by shifting the dates of their annual price hikes forward with each passing year (e.g. a price rise introduced in March 2020 is followed by another in January 2021, instead of March 2021). By taking this approach, some ISPs are effectively introducing more than one price hike on the same product(s) every year, which many would view as abusive.<\/p>\n

Take note that the ‘shifting dates<\/em>‘ example above is NOT the same as that which occurs when a provider increases the pricing of different products at different times of year (e.g. increasing the price of broadband at one point and then TV or call charges at another). Sometimes this is unavoidable due to changes in complex content licensing, contract or supplier arrangements (i.e. retail providers have to deal with some uncertain cost changes too).<\/p>\n

Why Prices Rise<\/strong><\/span><\/h3>\n

As annoying has it can be, there are legitimate reasons for prices to go up, not least because ISPs are frequently adding all sorts of new services (e.g. FTTP<\/a>), developing new systems, facing higher charges from suppliers and consumers are also gobbling significantly more data every year. However, the latter must be weighed against any fall in the cost of data capacity elsewhere vs any increase in broadband speed from new products etc.<\/p>\n

The biggest providers are also under added pressure to adopt all sorts of new Government rules and Ofcom<\/a> regulations, such as having to cater for the hugely expensive new system of automatic compensation (here<\/a>), as well as end-of-contract notification letters (here<\/a>) and a revised broadband speed code of practice (here<\/a>) etc. Improvements in consumer protection measures are great, yet they’re often anything but free for the ISP. Not to mention all that extra support in 2020\/21 for vulnerable users, partly due to COVID-19<\/strong>.<\/p>\n

In short, service improvements and catering for rising demand is an expensive challenge, which means that, ultimately, customers will end up paying more. But how ISPs account for this can vary like the wind, with related contract terms often appearing to change more frequently than the dishevelled locks of Boris Johnson’s (UK PM) hair.<\/p>\n

Current Approaches<\/strong><\/span><\/h3>\n

In the past providers were often more inclined to hit their customers with a surprise price increase across a range of products, but over the past few years this has begun to change. The latest pricing trend to sweep the market started in 2019, with BT<\/a> making an unusually positive move by choosing to link future price increases to the rate of inflation – Consumer Price Index<\/strong> (CPI) – each year (here<\/a>).<\/p>\n

At the time of BT<\/a>’s announcement CPI was hovering around the 2% mark, but this fell to 1.3% by the time of its introduction in March 2020, which meant that BT<\/a>’s customers were set to benefit from two things – a) a much smaller annual price increase than usual and, b) a predictable price increase that could easily be written into the provider’s future terms.<\/p>\n

One downside of this approach stems from the fact that new or upgrading customers would be aware of any future increases when they joined, which meant they’d struggle to take advantage of Ofcom<\/a>’s rule for mid-contract price hikes (GC1.6<\/a>). This applies when an increase constitutes a “material detriment<\/em>” to your service, such as those that go above the level of inflation (i.e. granting you the option to exit an existing contract penalty free, provided you do so within 30 days of recieving the price rise notification).<\/p>\n

NOTE:<\/strong> Ofcom<\/a>’s mid-contract rule may sometimes also apply if a provider removes a key feature from your package mid-contract, provided it constitutes a “material detriment<\/em>“.<\/div>\n

Suffice to say that 1.3% is well below the usual trend of 4-6% and so we weren’t in the least bit surprised when, in September 2020, BT changed it again to adopt a policy of CPI + 3.9% (here<\/a>). As a result, BT’s price increase in March 2021 became CPI 0.6 + 3.9 = 4.5% overall (here<\/a>). BT has since been followed in this trend by siblings EE<\/a> and Plusnet<\/a>, as well as rivals Three UK<\/a>, Vodafone<\/a> (here<\/a>), O2<\/a>, TalkTalk<\/a> (here<\/a>) and Origin (here<\/a>) etc.<\/p>\n

By comparison, Virgin Media<\/a> (here<\/a>) and Sky Broadband<\/a> (here<\/a>) have largely stuck to the old approach of a surprise general price increase, while Virgin Mobile customers only got a regular inflationary increase (here<\/a>).<\/p>\n

The Next Problem<\/strong><\/span><\/h3>\n

The providers that have just adopted the strategy of CPI + X% could face a problem next year because UK inflation is surging as a result of the economic recovery from COVID-19 (CPIH hit 2.1% in May 2021). Some forecasts have even indicated that it could potentially reach up to 3-4% by around the end of this year, which would occur during roughly the same period as many of those ISPs are setting their CPI pricing levels for the year.<\/p>\n

In other words, there’s a risk, albeit currently a VERY tentative one (other forecasts think it’ll stay closer to 2%+), that some consumers could face an annual price hike of c.7-8% next year and if that did come to pass then it would cause a sharp backlash from consumers, and perhaps rightly so.<\/p>\n

The Solution?<\/strong><\/span><\/h3>\n

Admittedly there may not be an easy one-size-fits-all style solution to this issue, although some consumers have suggested that a static annual rise of 4% – 5% could be built into future terms instead of CPI + X%, at least for core services (broadband rental etc.).<\/p>\n

However, the aforementioned idea won’t work for every single aspect of service provision (e.g. call charges are much more complicated and can vary between countries) and risks sniffling some innovation, as well as reducing the provider’s flexibility to adapt, such as in the cases of unexpected external change (e.g. connectivity hikes on wholesale charges or new Ofcom rules).<\/p>\n

Likewise, some ISPs may be worried about the risk of discouraging new customer if they make the reality of such increases fully transparent to consumers, versus those that prefer to hide such details until it suits them to make an announcement. But admittedly, this is somewhat already a risk via the current CPI + X% approach.<\/p>\n

Lest we forget that Ofcom’s recent Fairness Commitments<\/strong><\/a>, which are supported by most of the major broadband and mobile providers, requires signatories to “offer customers packages that … have a fair approach to pricing<\/em>” and ensure “prices are clear and easy to understand<\/em>.” But the language is ambiguous and doesn’t specifically tackle price hikes, as well as being more aimed at so-called “vulnerable<\/em>” users.<\/p>\n

NOTE:<\/strong> Ofcom’s Fairness Commitments are supported by BT, EE<\/a>, Giffgaff<\/a>, O2<\/a>, Plusnet<\/a>, Sky, TalkTalk<\/a>, Tesco Mobile<\/a>, Three UK<\/a>, Virgin Media<\/a> and Vodafone<\/a>.<\/div>\n

Just for fun, we’ll run two snap polls to see what readers think of these approaches.<\/p>\n

[poll id=”32″]<\/p>\n

[poll id=”33″]<\/p>\n

In the meantime, there are still some providers around, often smaller players, that don’t play the annual price hikes game or provide useful price guarantees (e.g. AAISP, Zen Internet<\/a>, iDNET<\/a> etc.). But the caveat is you might end up paying a bit extra for some of those.<\/p>\n

Alternatively, customers could try contacting their ISP directly and haggling for a lower price when a hike hits (Retentions – Tips for Cutting Your Broadband Bill<\/a><\/strong>), although your mileage may vary. Just remember that other major ISPs will also be increasing their prices, although this is often mitigated by special offers when you switch.<\/p>\n

At the end of the day, consumer broadband ISPs are commercial businesses with the flexibility to set retail prices however they so choose, but it would be nice if they could all be a bit more open and honest about the approaches they take. Some still have a bit of work to do on that front. Likewise, it should not be beyond the bounds of possibility for more providers to offer reliable fixed price plans that do not change during the contracted period.<\/p>\n","protected":false},"excerpt":{"rendered":"

Price hikes are fairly common amongst all of the largest UK broadband ISPs, which tend to increase what they charge by an average of c.4-6% with every passing year, albeit often via a mix of very different and changeable approaches. 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