Ofcom has launched a review to examine whether inflation-linked, mid-contract price rises give mobile phone and broadband customers sufficient certainty and clarity about what they can expect to pay.
They are concerned about the degree of uncertainty consumers face about future price rises specified in contracts based on 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 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 half of all customers do not know what CPI and RPI measure.
The review will examine these issues in detail to see whether tougher protections are needed.
What will the review look at?
The review will look specifically at the practice of in-contract price rises linked to inflation and percentage changes, which several telecom's 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, Ofcom 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.
Why are providers raising their prices?
Ofcom does not set retail telecoms prices. They 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.
Ofcom regulates 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.
Source - https://www.ofcom.org.uk/