Inflation-linked phone and broadband price hikes probed
The telecoms watchdog has launched a review of inflation-linked mid-contract price rises following concerns of its “unpredictable” nature which makes it hard for users to know how much they’ll pay.
Ofcom wants to see if these mid-contract price hikes linked to an unknown, future measure of inflation provides customers with “sufficient certainty and clarity” about what they can expect to pay.
While a number of telecom firms introduced these inflation-linked price hikes written in contracts in 2021, Ofcom said it can be difficult to know – months in advance – about what it will mean for bills in pounds and pence.
Ofcom has already found confusion with this pricing model, with a third of mobile and broadband customers not knowing whether their provider can increase their price.
And of those who do know about this clause, half didn’t know how it would be calculated, and didn’t know what CPI (Consumer Prices Index) and RPI (Retail Prices Index) measures of inflation were.
Ofcom said the review will examine these issues “to see whether tougher protections are needed”.
It added: “At a time when household finances are already under significant strain, it is vital for customers to have sufficient certainty about the prices they will pay over the course of their contract. Even for those who do understand inflation and are aware of its current level [10.5%], it is not possible for them to know what it will be in the future.”
Mid-contract price hikes
Ofcom does not set retail telecoms prices and providers are allowed to increase their prices during the contract period.
The majority apply mid-contract price hikes based on CPI (so it’s written into contracts and means customers can’t leave penalty-free), while others give customers 30 days’ notice and the right to exit penalty-free.
As an example, Virgin Media is one of the few providers that doesn’t apply mid-contract price hikes (those written into the terms when you sign up to a new deal), though it can and does apply price hikes at other times.
However, last month it announced a change to its terms and conditions. Going forward, price hikes will be written into contracts from April 2024, based on the RPI measure of inflation, plus 3.9%.
A spate of mobile, TV and broadband firms have recently announced price hikes, with millions of customers of Virgin Media, BT, EE, Sky and Vodafone facing 14% increases to bills this spring.
Under Ofcom rules, providers wishing to apply mid-contract price rises must make this clear to customers before they sign up. Separately, Ofcom is also probing the transparency of these.
‘Inflation-linked price rises can be unclear and unpredictable’
Ofcom said that for competition to work, customers must be able to shop around with confidence, which includes having a clear understanding of the prices they will pay.
Cristina Luna-Esteban, Ofcom’s director of telecoms consumer protection, added: “Customers need certainty and clarity about what they will pay over the course of their contract. But inflation-linked price rises can be unclear and unpredictable. So we’re concerned that providers are making it difficult for customers to know what to expect.
“We’re taking a thorough look at these types of contract terms, to understand fully the extent to which customers truly know what they’re signing up to, and whether tougher protections are needed.
“In the meantime, there are some simple things many people could do today to cut their bills. Millions of customers are either out of contract or with a provider that lets them walk away if prices go up. So we’re urging everyone to check their account and see what their options are.”
‘Ban mid-contract price rises’
Matthew Upton, director of policy at Citizens Advice, said: “Ofcom is right to shine a light on this practice, but consumers need rapid action before inflation-busting price hikes kick in this April.
“As we all pull together in a cost-of-living crisis, companies should do everything in their power to help consumers. That means making pricing crystal clear. Worryingly, we found one in three people currently on contracts with rises linked to CPI have never heard of it.
“What consumers really need is for Ofcom and the Government to ban mid-contract price rises.”
Ofcom expects to publish its initial findings later this year.