Ofcom has today set out a range of measures to help ensure out-of-contract broadband customers pay fairer prices, and providers offer better protection to vulnerable customers.
We have been concerned about some broadband customers who pay high prices when their introductory offer has ended, meaning they are ‘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 our programme of work to ensure fairness for customers, we have reviewed broadband pricing practices, to determine the best way to help these customers get better deals. In particular, we have examined the barriers people face when shopping around, and how vulnerable customers are affected.
We found that around 40% of broadband customers (8.8 million) are out of contract, and that significant savings are available to those who sign up to a new deal with their current provider.
We have also published a proposed guide on how firms can improve how they treat vulnerable customers. Our existing rules require all companies to support their vulnerable customers and treat them fairly. We’re calling on industry to do better in this area.
We have 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, some groups – including some vulnerable customers – could be left behind. We are 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 our 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.
Most of these commitments will come into effect by March 2020.
While existing laws do not allow Ofcom to cap prices in general, these commitments from industry will help protect out-of-contract customers from high prices.
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.
We have analysed the broadband market in unprecedented detail, looking at the prices paid by more than 20 million customers.
We found that people who sign a new deal with their current provider could typically pay £8-9 less per month than customers who remain out of contract. This is almost as much as the average saving of £9-10 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, we are 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.
Our analysis also found that last year – for the first time – discounted prices for superfast broadband were lower than those paid by some out-of-contract customers for slower copper broadband. This pricing approach encourages customers to move to faster, better services but they can only make that move if those services are available in their area.
However, with its new commitment, BT will ensure its customers without access to superfast broadband will no longer pay more than entry-level superfast customers.
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.”
Getting a fair deal is particularly important to financially vulnerable customers, who might struggle to afford a broadband service. So we are exploring the case for a new, special tariff to protect low-income households.
This would require broadband companies to offer a simple, low-cost broadband service to eligible customers. We are investigating the affordability of broadband services to inform our assessment of this option, which would require legislation.
Ofcom has an extensive programme to make it simpler for customers to switch or find a better deal with their existing provider. This includes:
1. Given the relatively small numbers of customers recorded by providers as potentially vulnerable, we believe much more progress can be made by firms to identify these customers. Our proposed guide sets out how providers can identify their vulnerable customers, and their additional needs, so they receive appropriate support and are treated fairly. We will continue to review companies’ performance in this area and will consider new rules if our concerns are not met.
2. Just over half a million customers live in areas where superfast broadband is not available.
3. Sky has already implemented this commitment. BT will offer new customer prices to existing customers for a limited time period when sending end-of-contract and best tariff notifications.
4. All customers who are not within a fixed term contract, like pay-as-you-go and SIM-only customers, will also get these annual notices.
5. Many customers could save money by negotiating a new deal with their existing provider or switching to a new one. The table below illustrates the difference between what new and re-contracting customers pay on average compared to those who are out of contract with a given provider, based on data gathered from providers as of November 2018:
6. Of the 8.8 million broadband customers who are out of contract, provider data indicates that 1.5 million are vulnerable, which represents 43% of all vulnerable customers.