Ofcom launches review into mid-contract price rises

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Ofcom has launched a review into whether mid-contract price rises by telcos give customers sufficient certainty about their finances.

The cost-of-living crisis has made budgeting more important than ever as households feel the squeeze and many get pushed into financial difficulties.

In the UK, telcos are free to include a clause in their agreements that allow for inflation-linked price rises mid-contract. Some providers guarantee not to increase their prices mid-contract but the majority do.

The unpredictability of inflation rates makes it impossible for households to budget ahead with any certainty. Households will never be able to guarantee what they’ll spend on things like food each year, but that shouldn’t be the case for their telecoms packages.

Ofcom has required telcos to make clear to customers before they sign up if they’re liable for mid-contract price rises. In December, the regulator launched an enforcement programme to check if companies are complying.

However, many believe the regulator needs to go further.

Alex Tofts, Broadband Expert at Broadband Genie, said:

“With the announcement of this review, Ofcom is finally addressing the elephant in the room that is inflationary price rises.

In 2014, the regulator vowed to protect consumers against ‘unexpected mid-contract rises’, yet they gave providers far too much wriggle room — allowing them to link increases to inflation as long as they were mentioned in advance. 

More recently they tried to tighten their guidance by making companies offer examples to customers of how inflationary rises might affect them in their contract, but this was a weak compromise.

Consumers shouldn’t have to go through a crash course in the Consumer Price Index or Retail Price Index to budget.”

Last month, the consumer rights group Which? called on telcos to let customers exit their contracts without penalty if prices are hiked mid-contract.

Rocio Concha, Director of Policy and Advocacy at Which?, commented: 

“It’s hugely concerning that many broadband customers could find themselves trapped in a lose-lose situation where they either have to accept exorbitant – and difficult to justify – mid-contract price hikes this Spring or pay costly exit fees to leave their contract early and find a better deal.

Which? is calling on providers to let their customers leave without penalty if they face mid-contract price hikes. Providers should also carefully consider the level of any price rises when many consumers are already under huge financial pressure.

With many households struggling to make ends meet, it is completely unfair that people are trapped in this situation. Telecoms providers need to step up and play their part to support their customers through the cost-of-living crisis.”

The investigation launched by Ofcom into mid-contract price rises will be welcomed by Which? and all others campaigning for customers to be given more clarity about what they’ll pay for their telecoms services.

Cristina Luna-Esteban, Director of Telecoms Consumer Protection at Ofcom, explained:

“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.”

Ofcom expects to publish its initial findings later in the year.

“The shame is that while inflation was running at four or five percent, this issue was largely kicked down the road — and it’s taken until inflation has reached record levels before Ofcom has decided to act,” added Tofts.

“It will be no consolation to the millions of customers facing bills of up to 17.3 percent this spring.”

(Photo by Christian Erfurt on Unsplash)

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