Customers could soon see the exact amount they will pay for phone, broadband and pay TV deals over the life of their contract as the regulator clamps down on inflation-linked and percentage-based price hikes.
Providers may soon have to start setting out in pounds and pence exactly how much customers will pay. This will also need to be displayed prominently at the point of sale under proposals set out by regulator Ofcom.
Currently, several providers’ contract terms allow for an annual price rise linked to future inflation – either Consumer Prices Index (CPI) or Retail Prices Index (RPI) – plus an additional percentage, typically 3.9%.
An estimated four in 10 broadband customers and over half of mobile customers were on contracts subject to these terms as of April 2023, with the regulator expecting these figures to swell to around six in 10.
It said when people sign up to a phone, broadband or pay TV contract, they should be “clear and certain” about what they need to pay throughout its duration.
But as contracts currently include this “uncertain future inflation” figure, customers on deals subject to these price rises can’t be sure about how much they’ll need to pay over the contract length. These price variation terms “may now have a greater impact on consumers than before”, Ofcom warned.
‘Complex and laborious steps’ working out inflation
An estimated 11 million broadband and mobile customers recently saw bills hiked by up to 17.3%, prompting the regulator to launch a review of inflation-linked mid-contract price rises.
It said the unpredictable nature of these terms “complicates the process of shopping for a deal” as customers need an understanding of inflation, they need to find and predict future rates, and add a fixed percentage on top to calculate the likely price they could pay.
“These are complex and laborious steps for most people to take”, Ofcom said.
It added: “We have found that consumers have low awareness and understanding of inflation-linked price rises and are unable to estimate reliably what they will pay. We also found that people do not typically consider future inflation-linked price rises when choosing a contract. When they do, they often do not understand them fully and find it difficult to estimate what the impact could be on their payments.
“We are concerned that inflation-linked price rise terms not only make it hard for people to find the best deal, but also make competition less effective. Further, they require customers to assume the risk and burden of financial uncertainty from inflation, with tangible impacts on their ability to manage costs.”
It has today launched a consultation to introduce the £/p requirement at the point of sale, with providers also required to set out when any changes in monthly price will take place.
This change would ban providers from including inflation-linked or percentage-based rises in new contracts. However, it wouldn’t stop them from raising prices during a contract term.
The consultation is open till 13 February 2024, with Ofcom expected to publish its final decision in the spring. The new rules are then expected to come into effect four months after.
Missed price rise information and social tariff take-up
Separately, Ofcom said it has found several providers who may not have given some customers clear information about price rises at the right time, “creating a potential compliance concern”.
It is currently investigating some phone and broadband companies to see if they complied with rules between March 2021 and June 2022. Ofcom added it has secured refunds for some affected customers, as it continues its probe which could lead to “targeted enforcement action if necessary”.
Elsewhere, Ofcom provided an update on the take-up of social tariffs aimed at households on low incomes or claiming benefits, providing the same speed and broadband quality but at a much cheaper rate, usually between £12 and £23 a month.
As of September 2023, there were 380,000 on a social tariff, up from 147,000 a year earlier.
While the number has more than doubled, Ofcom said awareness among eligible customers “remains a challenge”.
