Ofcom examined broadband contracts and pricing after becoming concerned that many customers, particularly those who are vulnerable, are missing out on the best deals.

The regulator has taken action to protect customers from high out-of-contract prices.

Pricing agreements

In September, Ofcom secured commitments from BT, TalkTalk and Virgin Media to reduce prices automatically for vulnerable customers who are out of contract.

It has now secured commitments from EE, Plusnet and Sky to do the same.

EE and Plusnet have also now joined BT, Sky and TalkTalk in agreeing to give all existing customers access to the same prices and packages as new customers.

Ofcom estimates that these pricing commitments could benefit all out-of-contract customers by more than £270m a year.

This would address more than half of the nearly £500m difference in what out-of-contract customers pay compared to average prices.

Protection for vulnerable customers

Following the review, all the major broadband providers now offer protection for their vulnerable customers.

Jane Rumble, Ofcom’s director of consumer policy, said: “We’ve already made it easier for people to get a discount and save money. But we’re concerned some customers who find it harder to seek better deals are missing out.

“So we’re pleased providers have done the right thing by cutting vulnerable customers’ bills. We’re now calling on them to go further and take extra steps to identify and support customers who might be vulnerable.”

The loyalty penalty

Ofcom found that, overall, strong competition meant most broadband customers are getting good value for money – with companies offering discounts to attract new customers.

But this type of discounting naturally leads to people paying different prices for the same service.

When a broadband customer’s initial discount comes to an end, this usually leads to a default price rise. Customers can avoid paying higher prices by negotiating a new deal or switching provider, but those who don’t are likely to be paying more than they need to. This is often referred to as the ‘loyalty penalty’.

Ofcom found that about 40% of broadband customers (8.7 million) are out of contract. On average, these customers pay around £4.70 per month more than their provider’s average price for their service.

End of contract notification

Rules introduced in February mean customers must be warned by their provider when their current contract is ending, and what they could save by signing up to a new deal.

However, Ofcom believes there is room for providers to do more to protect their vulnerable customers from high out-of-contract prices more generally. It wants broadband providers to better identify vulnerable customers and offer them better support if they have been out of contract for a long time.

It also wants to see additional help for those who are struggling to pay their bills – especially due to coronavirus.

What the experts say

Richard Neudegg, head of regulation at Uswitch.com, said: “This report is a stark reminder that being out of contract often means paying an average of £56 a year more than customers who are in contract with the same provider. Changing providers and going for a new deal can bring even greater cost savings.

“It’s positive that vulnerable customers are now shielded from some of the biggest overpayments and Ofcom is right to keep pushing providers to get help to those who need it.

“But more work needs to be done – households stuck with copper cables still face a double whammy of slow connections and paying more than those with superfast broadband. It’s time that this unfair situation was resolved.”

Natalie Hitchins, head of home products and devices at Which?, said: “It’s good to see the regulator working with providers to reduce the alarmingly large number of customers paying high prices when out of contract – our research has shown these people could be paying hundreds of pounds a year more than they need to.

“End of contract notifications should now allow you to know in advance that your contract is coming to an end, so if you are unhappy with your internet service or you think you could be paying too much, you should look to switch a better deal.”