Ofcom to review inflation-linked telecoms price rises
Ofcom has launched a review to examine whether inflation-linked, mid-contract price rises give phone and broadband customers sufficient certainty and clarity about what they can expect to pay.
We are concerned about the degree of uncertainty consumers face about future price rises specified in contracts on the basis of inflation. The unpredictability of inflation rates means it can be difficult to know – months in advance – what an inflation-linked price rise will equate to in pounds and pence when consumers enter a contract.
Our preliminary research (XLSX, 20.5 KB) has found that around a third of mobile and broadband customers do not know whether their provider can increase their price. Among those who do know their provider can increase their price, around half do not know how this would be calculated. And nearly half of all customers do not know what CPI and RPI measure.
Our review will examine these issues in detail to see whether tougher protections are needed.
What will our review look at?
This review will look specifically at the practice of in-contract price rises linked to inflation and percentage changes, which a number of telecoms firms introduced in 2021.
General consumer law does not prevent companies from increasing their prices during the contract period, provided they do so fairly. Many – but not all – telecoms firms choose to do this. Some give customers 30 days’ notice and the right to exit penalty-free. Others specify price rises in customers’ contracts from the start.
Ofcom has strict rules in place that mean providers who specify price rises in contracts must make this clear before customers sign up. In December, we launched a separate enforcement programme into whether companies have been sticking to this.
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, it is not possible for them to know what it will be in the future.
We need to take a closer look at these issues to consider whether we need to intervene to ensure customers have greater certainty and clarity, from the outset, about the prices they will pay over the duration of their contract. We expect to publish our initial findings later in the year.
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.Cristina Luna-Esteban, Ofcom’s Director of Telecoms Consumer Protection
Why are providers raising their prices?
Ofcom does not set retail telecoms prices. We support competition in the telecoms sector, as this provides choice for customers with a range of providers, services and packages on offer. This leads to providers competing to attract and retain new customers with better services and pricing.
However, for competition to work, consumers must be able to shop around with confidence, which includes having a clear understanding of the prices they will pay.
Telecoms providers – like all businesses – face a range of cost rises. Network investment is one of these costs. While average household spend on telecoms services has been broadly flat in real terms in recent years, at the same time customers have benefited from better, faster services and are using more data than ever before.
And as demand for data continues to accelerate, the UK’s broadband and mobile infrastructure is getting a much-needed upgrade. This requires significant investment from telecoms companies, who are also increasing the capacity of their networks to accommodate increasing data use.
We regulate wholesale telecoms prices in a way that sets the right conditions for companies to build these faster, more reliable networks. In total, next-generation ‘gigabit-capable’ broadband and 5G mobile is now available to seven in ten UK properties – around 21 million homes.
- Yonder interviewed a total of 3,499 people – 1,764 pay-monthly mobile customers and 1,735 fixed broadband customers – between 6 and 11 January 2023, using an online methodology. Quotas were set on region, age, gender and working status, and data was weighted to be nationally representative of the UK population.
- Our enforcement programme is looking at contracts entered into between 1 March 2021 and 16 June 2022. On 17 June 2022, we strengthened our rules so customers now get a summary of the main terms of their contract in writing before they sign up. We also introduced guidance to explain that providers should include clear examples of how any planned inflation increases will affect the price customers pay. If the increase uses an inflation index such as CPI or RPI, then providers should use the most recent figure. An example of wording setting out a price rise could say: In April each year, your price will increase by an amount equal to the CPI rate published in January of that year, plus 3.9%. Using the CPI value published in January 2023 of 10.5%, plus 3.9%, this would mean your monthly price of £40 would increase to £45.76 from April 2023.