BT explains why it's hiking broadband prices by 14.4%

BT has confirmed what we already knew: that many of its broadband customers will face hefty price hikes in the next couple of months.

The UK incumbent confirmed that customers will face an increase of 14.4% as of the end of March, calculated via the just announced December consumer price index (CPI) rate of inflation plus a further 3.9%, as outlined in its T&Cs.

It’s not the only one upping prices, of course, but it is the biggest and is therefore garnering the most attention, particularly given that some of its major rivals have yet to announce their own pricing changes.

And to be completely fair to the telco, it is also the one being the most transparent about it: BT published a comprehensive statement on its website covering the changes, while others – including TalkTalk, which is raising rates by a similar margin – are burying the information.

“It’s never easy to announce price rises, but that is particularly true this year. So it’s important for us to be as clear as possible as we increase our prices by the contracted CPI 10.5% +3.9% – for a total of 14.4% – for the majority of our customers from 31st March,” said Nick Lane, MD Customer Services, BT Consumer.

Despite its conciliatory tone, BT goes on to attempt to put a positive spin on the move, talking up network investments, higher speeds, coverage improvements and so forth. And it is keen for customers to know that it too is facing higher costs as it does all this.

“We continue to invest when, as a business, many of the costs we are facing are rising way above inflation,” Lane notes. “Take our energy costs, for example, which have increased approximately 80% over the past year. Component prices for the hardware we provide for our customers are going up. We also have additional costs imposed on us with the requirement to remove high-risk vendors from our core network – a cost we expect to reach around £500m.”

Few consumers’ hearts will bleed over BT’s own financial struggles, but these are all valid points. Similarly, it’s doubtful that many will feel soothed when BT points out that other prices elsewhere in the consumer market are shooting up faster than broadband.

“With the CPI rates now published, we expect our price change will mean an average increase of just over £1 a week for most people on broadband or mobile. Meanwhile, costs are going up by considerably more for everything else – energy costs the starkest example – with consumers not getting anything extra for their money. Just the same thing, only more expensive,” Lane said.

On a related note, one UK telco has taken the opportunity of the price hikes to point out that UK consumers could be getting a better broadband service, only cheaper.

“With millions of households now expecting inflation busting price rises for their broadband of up to 14%, further market research of broadband services shows that across almost every price point or speed tier, there is a faster and/or cheaper broadband service available over full fibre than over the legacy copper network (operated by BT Openreach), or cable network (operated by Virgin Media),” CityFibre declared this week.

It’s debatable how helpful that is right now to customers facing the upcoming hikes – we are talking about mid-contract price rises, after all. But CityFibre shares some interesting numbers.

It claims 22% of UK consumers believe that full fibre broadband would be “prohibitively expensive,” a figure that is based on a survey of just over 1,000 households from last February. However, it notes that low-speed broadband users could save as mush as £119 per year by upgrading to full fibre – that’s based on a comparison between a BT plan and a full fibre offer from Vodafone over the CityFibre network – while high-speed customers could rack up a saving of £458 over the same period by switching from a Virgin Media 1 Gbps plan to Vodafone. It’s worth noting though that in both cases the lower price involves introductory offers and refer to prices that were correct on 13 January.

Vodafone has yet to outline its own price rises for fixed broadband, but as Money Saving Expert points out, last year it went with the December CPI figure plus 3.9 pp, which would put it at the same level as BT should it do the same this year.

While price rises will affect the majority of broadband customers, the telcos are keeping prices static for their most vulnerable customers. In BT’s case, that means freezing the cost of landline-only plans, as well as those using basic BT and EE tariffs, and some other packages, which altogether amounts to about 3 million customers.

BT serves around 85% of the UK’s social tariff customers – plans for those receiving benefits, essentially – and insists it is taking a proactive approach to encouraging eligible customers to sign up. Nonetheless, numbers remain pretty low.

In September Ofcom called on telcos to do more for low-income households. It shared data from the previous month that showed just 136,000 UK households had a social tariff, a number that, at the time, represented just 3.2% of households receiving universal credit. It blamed the telcos for failing to advertise these types of plan properly, and it seems BT listened.

It says it has “nearly 1 million customers with subsidised or discount tariffs like Home Essentials,” which means there has either been rapid growth in the past few months, or BT is using different criteria than Ofcom. Either way, that seems like an element of progress.

However, there’s no getting away from the fact that telcos did not listen to Ofcom’s pleas to think carefully about their mid-contract price rises. It was merely a suggestion; there was no way the regulator would step in to block the hikes. But clearly it was not a palatable suggestion to broadband providers with bills to pay and shareholders to keep happy.

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