Ofcom tackles inflation-linked price hikes

Ofcom is reviewing whether inflation-linked, mid-contract price rises are fair for consumers.

The UK regulator is happy enough with allowing telecoms operators to increase prices during the contract period, but it is concerned that the practice of linking those increases to rates of inflation makes it difficult for consumers to know what’s coming.

Essentially, many UK fixed broadband and mobile customers don’t fully understand how any price rises during their contract would be calculated, nor what the various inflation measures actually mean.

And as such, consumers can’t budget, because they don’t know how much more per month they could be liable for.

This latest review from the regulator is separate from the investigation it launched in December into mid-contract price rises. That investigation is specifically linked to the way service providers market their offers and whether it is clear to customers from the get-go that prices could rise. It also refers to a defined time period – 1 March 2021-16 June 2022 – or the 15 months before Ofcom introduced new rules on short and simple contract details.

That probe is ongoing and is about clarity. This new review is about customers understanding the maths.

Ofcom shared the results of a study it carried out in January among around 3,500 mobile and fixed Internet customers. The data shows that almost a third of customers did not know whether or not their provider could change prices during the contract period. That’s not to say that their providers have been unclear on the T&Cs, of course; there are many reasons why a customer might not know.

Of those that were aware of possible price rises, around half did not know how this would be calculated. And nearly half of all those surveyed did not know what CPI and RPI measure, Ofcom said.

The CPI, or the consumer prices index, and retail prices index (RPI) are both measures of inflation used in the UK. Both essentially measure the change in the price of goods and services over time, and both are used by telecoms operators to set new mid-contract prices, usually with a couple of percentage points added for good measure.

BT, for example, uses a CPI plus 3.9% formula to calculate its price rises, and as such last month confirmed that as of the end of March the majority of its customers would see their bills go up by 14.4%.

That’s just over £1 per week, on average, the UK incumbent said. That figure is obviously much easier for customers to work with than percentages and CPI figures…and further kudos to the telco for being so upfront about its price rises, although admittedly it’s probably little comfort to those facing the increase. It’s important to note though, that most major UK operators are working with similar figures, and most consumers will see prices go up.

A handful of smaller players – fibre builder Hyperoptic being a notable one – have campaigned for an end to mid-contract price rises. And you can see their point. As a consumer, signing up to, say, a two-year contract at one price, only to have to find an extra £50-plus per year come the spring, feels like a bait and switch. Because it is.

And the old argument that telecoms operators face rising prices too doesn’t really hold water.

“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,” Ofcom said on Thursday.

No argument there. Putting fibre in the ground and 5G in the air doesn’t come cheap.

But that doesn’t really address the question of why telcos are unable to factor these costs into a contract from the start; these are not decades-long contracts, after all.

Rant over. Ofcom is not actually tackling the broader issue of mid-contract prices here. This is all about whether customers can predict in a meaningful way what they will have to pay for broadband or mobile services.

Ofcom’s survey already suggests that many cannot. But the regulator has not made any real comment on what it plans to do about it, should its review reach the same conclusion.

“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,” said Cristina Luna-Esteban, Ofcom’s Director of Telecoms Consumer Protection.

Those tougher protections are likely to amount to little more than another change in the way contracts are worded. But it’s probably a step in the right direction.

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