Ofcom bans telcos from enacting inflation-linked mid-contract price rises

Having launched an investigation in February last year into whether inflation-linked, mid-contract price rises from telcos are fair for consumers, Ofcom concluded that customers were unclear on the rules and subsequently proposed that they be banned, following a consultation.

It’s now been confirmed that under new rules, any price rise written into a customer’s contract from 17 January 2025 will need to be laid out in pounds and pence, ‘prominently and transparently’ at the point of sale. Mobile, broadband and pay TV providers will also be required to be clear about when price changes will occur during their contract period.

Ofcom notes that some providers need this time to make the necessary changes to their processes and business plans, but that others don’t have to wait for the deadline and gives a shoutout to BT and Vodafone for already making changes to pricing policies.

Explaining its thinking behind the move, Ofcom said that in recent years more and more providers have been including an annual price rise in their contracts that is linked to future inflation, plus typically a 3.9% additional increase dropped every March or April.

It estimates that as of April 2024, around six in ten broadband and mobile customers were on contracts subject to inflation-linked price rises, and the regulator asserts that this makes it difficult for customers to know what they will pay over the course of their contract.

According to its research, 55% of broadband customers and 58% of pay monthly mobile customers do not know what inflation rates such as CPI and RPI measure, and of those who are with providers that use inflation-linked price rises, only 16% of broadband customers and 12% of mobile customers ‘were both aware of the price rise and able to identify that it was inflation-linked with an additional percentage.’

The regulator also found that when people do consider future inflation-linked price rises when choosing a contract, they often do not understand them fully and ‘find it difficult to estimate what the impact could be on their payments.’

“With household budgets squeezed, people need to have certainty about their monthly outgoings,” said Cristina Luna-Esteban, Ofcom Telecoms Policy Director. “But that’s impossible if you’re tied into a contract where the price could change based on something as hard to predict as future inflation.

“We’re stepping in on behalf of phone, broadband and pay TV customers to stamp out this practice, so people can be certain of the price they will pay, compare deals more easily and take advantage of the competitive market we have in the UK.”

By way of making a point about the benefits of well-functioning market competition, Ofcom also stated in the release that over the last five years, average prices for broadband and mobile services in the UK have fallen in real terms, while companies have been investing in upgrading their networks, 'with availability of full fibre increasing tenfold and average speeds and data use doubling.'

Inflation of course impacts companies as well as consumers, and the costs of upgrading mobile and fixed networks are high. There is a point to be made about the economics of telecoms infrastructure upgrade costs versus how much customers pay for the services in the UK, but leaving that aside this move by Ofcom is about contract transparency, and it’s hard to argue with customers being better informed of what they are getting into when they sign up to services, whatever they are and however much they cost.