BT drops inflation-linked price hikes

The UK incumbent is getting in early with its plan, making the announcement shortly before the Office for National Statistics is due to publish December's consumer price index figure, the measure of inflation many telecoms operators use to calculate price increases.

With the CPI due out on Wednesday morning, all eyes in the telecoms space will be on retail service providers and the way they choose to present their new pricing levels. And being the biggest in the market, BT tends to face the closest scrutiny.

By announcing a change now, BT can paint itself in a more positive light, even though its customers will still face mid-contract price rises, and doubtless at similar levels to what we have seen of late.

"Our annual price change is never an easy conversation to have with customers, particularly when so many people are dealing with the increasing cost of living. But it is a necessary conversation to have to help us manage our own rising costs and investments we're making into networks and customer service," BT's Consumer CEO Marc Allera wrote in a blog post on Tuesday.

He went on to explain that starting in early summer BT will introduce a new pricing model consistent with the approach Ofcom is currently debating. It will ditch the 'CPI plus a percentage' calculation – in BT's case it's currently CPI plus 3.9% – and will instead detail price rises in pounds and pence.

We don't know much more about what that will look like at this stage, but the telco said it expects rises to start at £1.50 per month for some mobile customers and £3 for broadband.

Ofcom outlined its plan to ban inflation-linked price rises in favour of a pounds-and-pence model back in December – its consultation into the matter will run until mid-February – with a view to giving consumers greater clarity on what their bills will look like. The regulator shared data that showed many consumers do not understand the measures of inflation operators use to calculate price rises, nor that they even have such a contract in the first place.

It's an issue that has made headlines in the UK for a year or more due to growing inflation and the related cost-of-living crisis. The big telcos, BT included, took something of a media hammering when they pushed prices up this time last year, and they're probably in for more of the same this year.

Tackling the way price rises are calculated and explained to consumers is certainly a step in the right direction, from both the regulator and BT; the latter's decision to move now shows it believes Ofcom will go ahead with the plan. But it doesn't change the fact that mid-contract price rises are seen by many as intrinsically unfair. Yes, we accept that telcos have bills to pay, but surely it's not rocket science to factor that into the contract at the time of sale, rather than opting for the bait-and-switch of a mid-contract hike.

But that's a separate issue. The pounds-and-pence approach makes things easier for consumers – to understand, if not to pay – and that's a plus.

It was "a smart move" from BT to jump the gun on Ofcom's expected new rules, noted Kester Mann, Director, Consumer and Connectivity at CCS Insight. "The ball is now in the court of the UK's other operators, some of which will probably quickly follow BT's lead," Mann predicted.

"But for would-be partners Vodafone and Three, it'll mean some crucial decisions given that their pricing strategy will be scrutinized by the competition watchdog as part of a major upcoming investigation into their planned merger," he added. Indeed, it seems very little can happen in the UK market at present without there being some sort of impact on the Vodafone/Three tie-up.

BT is unlikely to lose any sleep over that though. Its main concern for now is navigating the negativity that will almost certainly accompany the publication of the CPI figure.

Allera confirmed that this year's CPI plus 3.9% increase, effective 31 March, will go ahead as usual. And did his best to play down the significance of it.

"With the CPI inflation rate being announced tomorrow, most of our customers can expect an increase of a few pounds per month, about the price of a takeaway coffee each month," he said.

To put it another way, that's another takeaway coffee that customers can no longer afford due to having to pay more for broadband than when they signed up.