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By: MarkJ - 3 March, 2011 (10:01 AM)
ofcom uk average broadband ISP speeds March 2011The communications regulator, Ofcom UK, has today announced a new proposal to ban landline phone contracts that automatically roll-over (renew) unless you opt-out. Several smaller providers and BT themselves currently use automatically renewing contracts, which can make it difficult to leave a service without incurring penalty charges.

Ofcom Statement

Ofcom is concerned that rollover contracts make it harder for customers to switch providers and consequently reduce the benefits of competitive choice.

For individual customers, this can mean that switching is made unattractive as the costs involved are unexpectedly high.

For the market generally, it means less competition as it is harder for competing providers to attract customers on rollover contracts and therefore their ability and incentive to create lower cost and higher quality services is reduced.

Ofcom is proposing to amend its existing rules in relation to contract terms to prohibit opt-out contract renewals in any form in the landline and broadband sectors.

Apparently some 15-20% of residential consumers are on rollover contracts in the UK and Ofcom wants the practice stopped. The issue first made headlines during 2009, when TalkTalk officially called upon Ofcom to "stamp out" BT's "unfair rolling contracts". Naturally BT was quick to defend itself (here).

A BT Spokesman told ISPreview.co.uk (March 2009):

"Customers make a clear positive choice to opt in to a renewable contract in exchange for the considerable benefit of free evening calls [or other discounts]. The renewable nature of the contract is clearly explained three times up front to the customer.

Customers are very clearly reminded in writing with around 30 days notice when their contract is coming up for renewal that they will be entering into a new 12-month period unless say that they do not wish to do so. If they wish to leave at this point, they can without charge. Our communications are extremely clear on what the customer can expect, in return for the continuing benefit they will receive. Many other services, such as magazine subscriptions, insurance, car breakdown services are contracted in similar ways."

The problem was raised once again in February 2010 when Which? claimed that BT's renewable broadband and phone contracts could be breaking the law on distance selling regulations by "not providing sufficient cancellation rights when existing customers sign up to renewable contracts over the phone" (here).

So, after two years, Ofcom has finally acknowledged the concern. The consultation itself is open until 12th May 2011. If approved, any provider caught operating such contracts could face enforcement action (e.g. financial penalty of up to 10% of the ISPs turnover).
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