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Ofcom brings fairer pricing for broadband customers

Emma Lunn
Written By:
Emma Lunn

The regulator has set out a range of measures to help ensure out-of-contract broadband customers pay fairer prices, and that providers offer better protection to vulnerable customers.

Ofcom says it is concerned some broadband customers being forced to pay higher prices when their introductory offer ends. These customers are referred to as being “out of contract”.

Many of these customers could save money by negotiating a new deal with their existing provider or switching to a new one.

As part of the regulator’s programme of work to ensure fairness for customers, it has reviewed broadband pricing practices, to determine the best way to help these customers get better deals. In particular, it has examined the barriers people face when shopping around, and how vulnerable customers are affected.

It found that about 40 per cent (8.8 million) of broadband customers are out of contract, and that significant savings are available to those who sign up to a new deal with their current provider.

It has also published a proposed guide on how firms can improve how they treat vulnerable customers. Existing rules require all companies to support their vulnerable customers and treat them fairly – but Ofcom is calling on industry to do better in this area.

Making pricing fairer

Ofcom has challenged broadband companies to make their prices fairer for out-of-contract customers.

Although it is common in competitive markets for companies to offer discounted prices to attract new customers, Ofcom is worried that some groups – including some vulnerable customers – could be left behind.

It is also concerned about the out-of-contract prices paid by people who are stuck on copper broadband, without the option of switching to superfast broadband yet.

As a result of Ofcom’s review, the UK’s biggest broadband companies have made a range of commitments to protect customers and cut prices for those who are out of contract.

  • BT, Sky and TalkTalk have all agreed to allow their out-of-contract customers to get the same deals as new customers, when they take out a new contract.
  • The difference that any of Sky’s newly-contracted customers will pay when their contract expires is no more than £5 per month. From February, BT will cap the difference that existing in-contract customers pay when their contracts expire – it will confirm the amount of this cap in due course.
  • BT customers without access to superfast broadband will no longer pay more than entry-level superfast customers. And BT will provide a one-off automatic price reduction for vulnerable customers who are currently out of contract on more expensive deals.
  • TalkTalk and Virgin Media have agreed to carry out annual price reviews with their vulnerable customers to ensure they are on the best deal for their needs, and provide automatic discounts where appropriate if customers do not respond.
  • BT, EE, Plusnet and TalkTalk have also agreed to protect out-of-contract customers from above-inflation price rises.

Most of these commitments will come into effect by March 2020.

From February, broadband customers must also be told when their contract is coming to an end, and shown the best deals available. People who choose to stay with their provider without signing up to a new contract will be given details of their firm’s best deals every year.

What Ofcom’s review found

Ofcom found that people who sign a new deal with their current provider could typically pay £8 to £9 less per month than customers who remain out of contract.

This is almost as much as the average saving of £9 to 10 per month made by new customers signing up to an introductory discount with that provider. And a third of those who negotiate a new deal with their provider actually pay less than those on introductory deals.

However, Ofcom is concerned about some people, particularly those in vulnerable circumstances, who may be paying more than they need to  because they lack the confidence to navigate the market or talk to their provider.

Lindsey Fussell, Ofcom’s consumer group director, said: “Broadband customers who are out of contract can make big savings – around £100 a year on average – by picking up the phone to their current provider and signing up to a better deal.

“And in future, everyone will be told about the best tariff on offer. Thanks to the commitments we’ve secured from major broadband firms, many customers – including the most vulnerable – will pay less.”

Gillian Guy, chief executive of Citizens Advice, said: “Our super-complaint, submitted a year ago, found that loyal broadband customers lose over £1 billion a year. Ofcom has today confirmed that finding. The fact that 43 per cent of all vulnerable customers are out-of-contract means that Ofcom needs to tackle this problem urgently.

“While we welcome today’s announcement, it’s unlikely that voluntary, piecemeal commitments from providers will address the sheer scale of the challenge we’ve identified. It’s vital that we see stronger, faster action in the broadband market before the Competition and Markets Authority report back in December on progress since our super-complaint. If this fails to happen, we expect them to conduct a market study to ensure loyal customers can get a fair deal once and for all.”

TalkTalk announced last week that it will offer new and existing customers the same deals, while vulnerable customers will automatically benefit from being on the best tariff.