{"id":36621,"date":"2024-07-19T07:34:52","date_gmt":"2024-07-19T06:34:52","guid":{"rendered":"https:\/\/www.ispreview.co.uk\/?p=36621"},"modified":"2024-07-19T13:07:51","modified_gmt":"2024-07-19T12:07:51","slug":"ofcom-uk-approve-plan-to-ban-some-mid-contract-broadband-price-hikes","status":"publish","type":"post","link":"https:\/\/www.ispreview.co.uk\/index.php\/2024\/07\/ofcom-uk-approve-plan-to-ban-some-mid-contract-broadband-price-hikes.html","title":{"rendered":"Ofcom UK Approve Plan to BAN Some Mid-Contract Broadband Price Hikes UPDATE2"},"content":{"rendered":"

The UK telecoms regulator, Ofcom<\/a>, has today finalised their earlier proposal to BAN phone, mobile, pay TV and broadband ISPs from doing mid-contract price hikes that are linked to inflation and percentage changes. The plan is to introduce this change from 17th January 2025, before the next round of annual price increases typically hit.<\/p>\n

Back in 2020 most of the major providers preferred to announce a general price increase each year, which usually averaged around 4-6%. But that changed after BT<\/a> adopted a key policy and now almost all of them (except Sky Broadband<\/a>) increase their prices each year by nearly 4% plus the rate of annual inflation (CPI or RPI) \u2013 as published in a particular month (usually January or February).<\/p>\n

NOTE:<\/strong> The Advertising Standards Authority<\/a> (ASA) introduced new guidelines in December 2023 to help make inflation linked price increases more transparent (here<\/a>), but it didn’t solve all the issues. As of April 2023, 11 million broadband users and 36 million mobile customers were on contracts subject to inflation-linked price rises.<\/div>\n

Initially, the change wasn’t such a problem because inflation remained low, but it’s been far from low over the past couple of years. In 2022 most consumers saw their prices rise by around 9% (here<\/a>) and in 2023 that hit over 14% (here<\/a>), although falling inflation meant that the hikes for 2024 weren’t quite that and were closer to 7-8% (here<\/a>). But these weren’t the only problems with inflation linked price hikes.<\/p>\n

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 (e.g. not being familiar with how “inflation<\/em>” actually works or the meaning of terms like CPI or RPI).<\/p>\n

The Intervention<\/strong><\/span><\/h3>\n

The regulator arguably took too long to respond to the concerns, but their review eventually found that consumers have \u201clow awareness and understanding of inflation-linked price rises<\/em>\u201d and are \u201cunable to estimate reliably what they will pay\u201d<\/em>. Ofcom<\/a> also found that people do not typically consider future inflation-linked price rises when choosing a contract.<\/p>\n

Ofcom<\/a> said more than half (55%) of broadband customers and pay monthly mobile customers (58%) do not know what inflation rates such as CPI and RPI measure. And of those who are with providers that use inflation-linked price rises, very few broadband (16%) and mobile customers (12%) were both aware of the price rise and able to identify that it was inflation-linked with an additional percentage.<\/p>\n

In response, the regulator announced a proposal in December 2023 to “effectively ban<\/em>” the practice (here<\/a>). Instead, wherever telecoms or pay TV providers apply in-contract price rises they must now “set these out clearly and up-front, in pounds and pence, when a customer signs up<\/em>“. Put another way, providers would be able to present their monthly subscription price (e.g. \u00a330 per month), but any mid-contract price hikes must be spelled out alongside and include the dates when they will become applicable.<\/p>\n

“Providers must draw this information to the customer\u2019s 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<\/em>,” said Ofcom’s statement.<\/p>\n

\"Ofcom-Mid-Contract-Price-Rises-Example-Policy-for-2024\"<\/p>\n

Ofcom has spent the past few months consulting the industry on these proposals, and they’ve today announced their intention to adopt them into their rules (General Conditions). The announcement confirms that the regulator will formally begin to enforce this change on the market from 17th January 2025<\/strong>.<\/p>\n

Some providers, such as TalkTalk<\/a>, complained that the move was unfair because Ofcom hadn’t applied the same rules to wholesale providers – they singled out Openreach<\/a> as an example. But unlike retail providers, Openreach<\/a> don\u2019t do the CPI + X% model (usually they just do a pure inflation increase) or apply such changes mid-contract. Likewise, it’s not as if other providers (e.g. smaller players) don’t have to deal with variable supply side costs already, yet many of them still manage to avoid mid-contract hikes.<\/p>\n

Cristina Luna-Esteban, Ofcom’s Telecoms Policy Director, said:<\/strong><\/p>\n

“With household budgets squeezed, people need to have certainty about their monthly outgoings. But that\u2019s impossible if you\u2019re tied into a contract where the price could change based on something as hard to predict as future inflation.<\/p>\n

We\u2019re stepping in on behalf of phone, broadband and pay TV customers to stamp out this practice, so people can be certain of the price they will pay, compare deals more easily and take advantage of the competitive market we have in the UK.”<\/p><\/blockquote>\n

The change will naturally increase the risk for providers that typically adopted the CPI\/RPI + X% model to annual hikes. But providers still have to balance that higher risk 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 none of this will make services cheaper, only clearer. In some cases, it may even make them more expensive than the old approach.<\/p>\n

Some providers, such as the BT<\/a> Group ISPs (e.g. BT<\/a>, Plusnet<\/a> and EE<\/a>) and Vodafone<\/a>, have already responded to this by introducing a flat \u00a33 per year increase on broadband and a c.\u00a31-\u00a32 increase on mobile. Such a policy is much clearer, but it doesn’t scale well across differently priced packages (i.e. those on entry-level services will be hit harder) and is unlikely to damped calls for an outright ban on mid-contract hikes \u2013 something we\u2019d support.<\/p>\n

Speaking of which, if service providers can now predict their increases ahead of time, then it arguably increases the case for just baking those planned hikes into a fixed price contract. At this point it\u2019s worth remembering that not all providers adopt the same approach as the biggest players and many smaller ISPs, particularly newer alternative networks (altnets), often already promote packages with simple fixed price terms.<\/p>\n

Finally, Ofcom’s changes only impact new or recontracting terms, which means that existing customers will need to change (or re-contract) their current package in order to be covered by the new policy. The change is also only applicable to price rises that apply to the “Core Subscription Price<\/em>“, which means that charges for add-ons (out-of-bundle) and calls can still adopt the existing or a different approach (this could make things confusing).<\/p>\n

We should also remember that, over the last five years, average prices for broadband and mobile services in the UK have actually fallen in real terms (Ofcom’s data). At the same time, companies have been investing in upgrading their networks, with availability of full fibre increasing tenfold and average speeds and data use doubling.<\/p>\n

UK telecoms markets over the last five years (2023 prices)<\/strong><\/span><\/p>\n\n\n\n\n<\/colgroup>\n\n\n\n\n\n\n\n\n\n
 <\/th>\n2018<\/th>\n2023<\/th>\n<\/tr>\n<\/thead>\n
Average superfast broadband bundle list price<\/td>\n\u00a348.71<\/strong><\/td>\n\u00a342.28<\/strong><\/td>\n<\/tr>\n
Average monthly mobile price, excluding handset costs<\/td>\n\u00a317.12<\/strong><\/td>\n\u00a311.51<\/strong><\/td>\n<\/tr>\n
Full-fibre broadband availability<\/td>\n6%<\/strong><\/td>\n57%<\/strong><\/td>\n<\/tr>\n
Median average fixed broadband download speeds<\/td>\n37.0 Mbit\/s<\/strong><\/td>\n69.4 Mbit\/s<\/strong><\/td>\n<\/tr>\n
Average monthly household fixed broadband data use<\/td>\n240 GB<\/strong><\/td>\n535 GB<\/strong><\/td>\n<\/tr>\n
Average monthly mobile data use<\/td>\n3.4 GB<\/strong><\/td>\n9.8 GB<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Statement: Prohibiting inflation-linked price rises<\/strong><\/span>
\nhttps:\/\/www.ofcom.org.uk\/..\/review-of-inflation-linked-telecoms-price-rises<\/a><\/p><\/blockquote>\n

UPDATE 12:02pm<\/strong><\/p>\n

The ISPs have been surprisingly quiet on this change today, but we have had one pro-active comment from Cuckoo<\/a>.<\/p>\n

Sarah Howells, Managing Director at Cuckoo<\/a>, said:<\/strong><\/p>\n

“This ban from Ofcom is long overdue, and we welcome the move, however at Cuckoo<\/a> we\u2019ve taken this one step further. Yes, bringing more transparency to these increases is key to avoid consumer confusion, but at Cuckoo we\u2019ve never raised prices mid-contract.<\/p>\n

Mid-contract price rises are a tactic that the big six broadband providers have been using for years, leaving customers confused and shortchanged.<\/p>\n

Major providers are still squeezing consumers unfairly. While a number of brands have moved to comply ahead of the Ofcom guidance by clearly communicating their mid contract price rises in ‘pounds and pence’, at the end of the day they are still raising prices mid-contract, and these increases will differ depending on who your provider is.<\/p>\n

Imagine you buy a ticket for a football match, but then at halftime you’re told you’ll have to pay more to watch the second-half – and then you’re fined if you want to leave.<\/p>\n

As an industry broadband needs to be more transparent, more customer focused and fairer. It\u2019s something we\u2019re striving to do at Cuckoo. Today\u2019s Ofcom ban is a welcome step in the right direction, but mid-contract price rises are bad full-stop.\u201d<\/p><\/blockquote>\n

UPDATE 1:06pm<\/strong><\/p>\n

We’ve also had a comment from city-focused full fibre ISP Hyperoptic<\/a>.<\/p>\n

Dana Tobak, CEO of Hyperoptic<\/a>, said:<\/strong><\/p>\n

\u201cHaving campaigned against unpredictable mid-contract price hikes for over two years, and with the cost of living still hitting people hard, we are delighted to see Ofcom take a firm stance on the issue. This is a huge step towards a fairer, more transparent broadband market, which will help to protect millions of customers from unknowingly being locked into contracts that surprise them with an unavoidable price rise after a few months. Hyperoptic<\/a> prides itself on being in the corner of customers, offering hyper fair and transparent contracts with no mid-contract price hikes.\u201d<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The UK telecoms regulator, Ofcom, has today finalised their earlier proposal to BAN phone, mobile, pay TV and broadband ISPs from doing mid-contract price hikes that are linked to inflation and percentage changes. 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