Ofcom proposes ban on inflation-linked mid-contract price rises

Via Ofcom

Dec 12, 2023

  • Ofcom also reveals that take-up of social tariffs more than doubled in the last year, but millions of eligible customers remain unaware of them.

Telecoms customers must be told upfront in pounds and pence about any price rises their provider includes in their contract, under new consumer protection plans set out today by Ofcom.

With most major phone, broadband and pay TV companies now including mid-contract price rises linked to uncertain future inflation, we are concerned that customers’ contracts do not provide sufficient certainty about the prices they will pay.

So we are proposing to introduce tougher protections for customers by banning this practice.

Confusing price rise terms risk undermining competitive market

Competition helps keep prices down. Although some broadband prices have increased this year, over the last five years, average prices for broadband and mobile services in the UK have fallen in real terms. At the same time, companies have been investing in upgrading their networks, while average speeds and data use have increased.[1]

However, for competition to work, consumers must be able to shop around with confidence.

In recent years, pricing practices where providers impose an annual rise linked to unpredictable future inflation, plus an additional percentage of typically 3.9%, have become significantly more widespread, undermining customers’ understanding of what they will pay.

Timeline: Introduction of inflation-linked price variation terms including an additonal fixed percentage

What we have found

Our analysis of providers’ data shows that as of April 2023 four in ten (11 million) broadband customers and over half of mobile customers (36 million) were on contracts subject to inflation-linked price rises. We estimate that these numbers may grow further, to around six in ten of both broadband and mobile customers, as Three and Virgin Media apply inflation-linked in-contract price rise terms to more of their customers’ contracts during 2023/24.

However, awareness and understanding of these terms is very low.  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.[2]

We also found that even when people do consider future inflation-linked price rises when choosing a contract, they often do not understand them fully and find it difficult to estimate what the impact could be on their payments.

Between January and October 2023, Ofcom received over 800 complaints related to price rises – almost double the volume of complaints received during the same period in 2021 – many of which highlighted uncertainty created by inflation-linked price rises.

Our conclusions

We have provisionally concluded that inflation-linked mid-contract price rise terms can cause substantial amounts of consumer harm by complicating the process of shopping for a deal, limiting consumer engagement, and making competition less effective as a result.

These terms also require customers to unfairly assume the risk and burden of financial uncertainty from inflation, with tangible impacts on their ability to manage costs at a time when household budgets are already stretched to the limit.

Toughening our rules

To tackle this problem, we propose to introduce a new rule requiring that any price written into a customer’s contract would need to be set out in pounds and pence, prominently and transparently, at the point of sale. That includes being clear about when any changes to prices will occur.

This would prevent providers from including inflation-linked, or percentage-based, price rise terms in all new contracts.

Example of how the £/p requirement would apply

Before and after diagram

Next steps

We are consulting on this proposed new requirement until 13 February 2024, and plan to publish our final decision in spring 2024.

Subject to responses, we intend for the new rule to come into effect four months after the publication of our final decision. This period reflects our concern about the scale of consumer harm balanced against the need to give providers sufficient time to make the necessary changes to their processes and business plans.

Enforcement action

Separately, we have been investigating whether phone and broadband companies complied with our previous rules between March 2021 and June 2022. We have found that a small number of providers may not have given some customers clear information about price rises at the right time, creating a potential compliance concern.

We have discussed these concerns with the relevant providers and secured refunds for some affected customers. We will continue to discuss our remaining concerns with these providers, escalating to separate, targeted enforcement action if necessary.

Social tariff take-up doubles in a year

Ofcom has also today published its annual Pricing Trends report, which this year includes the latest take-up and awareness figures for social tariffs.

Social tariffs are cheaper broadband and phone packages for people claiming Universal Credit, Pension Credit and some other benefits. Some providers call them ‘essential’ or ‘basic’ broadband.

Take-up of social tariffs increased to 380,000 in September 2023, up from 147,000 a year earlier, meaning more customers are benefitting from the savings the tariffs offer. However, awareness among eligible customers remains a challenge. Just over half (55%) of eligible households remain unaware of social tariffs; and while take-up is improving, it remains low as a proportion of all eligible households (8.3%).

For the first time, we have published take-up figures for each of the largest providers of broadband social tariffs.

Social tariff take-up: February 2022 to September 2023 (000s)

Bar chart showing take up of social tariff from February 2022 to September 2023“No data” indicates that we did not collect social tariff take-up figures in a particular month: these values are estimated and do not represent actual take-up.

BT has the largest share of broadband customers taking a social tariff (72%), followed by Sky (13%), Virgin Media (6%), Vodafone (4%), KCOM (1%) and Shell Energy (0.3%). These proportions are partly a reflection of the length of time over which different social tariff products have been available. TalkTalk is the only major broadband provider not to offer a social tariff.

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