REG - OFCOM - Ofcom proposes ban on inflation-linked price rises

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12/12/2023 08:15

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RNS Number : 4681W  Office of Communications  12 December 2023

Ofcom proposes ban on inflation-linked mid-contract price rises

 

·    Ofcom also reveals that take-up of social tariffs more than doubled
in the last year, but millions of eligible customers remain unaware of them

 

Telecoms customers must be told upfront in pounds and pence about any price
rises their provider includes in their contract, under new consumer protection
plans set out today by Ofcom.

 

With most major phone, broadband and pay TV companies now including
mid-contract price rises linked to uncertain future inflation, we are
concerned that customers' contracts do not provide sufficient certainty about
the prices they will pay.

 

So we are proposing to introduce tougher protections for customers by banning
this practice.

 

Confusing price rise terms risk undermining competitive market

 

Competition helps keep prices down. Although some prices have increased this
year, over the last five years, average prices for broadband and mobile
services in the UK have fallen in real terms. At the same time, companies have
been investing in upgrading their networks, while average speeds and data use
have increased. 1 

 

However, for competition to work, consumers must be able to shop around with
confidence.

 

In recent years, pricing practices where providers impose an annual rise
linked to unpredictable future inflation, plus an additional percentage of
typically 3.9%, have become significantly more widespread, undermining
customers' understanding of what they will pay.

 

What we have found

 

Our analysis of providers' data shows that as of April 2023 four in ten (11
million) broadband customers and over half of mobile customers (36 million)
were on contracts subject to inflation-linked price rises. We estimate that
these numbers may grow further, to around six in ten of both broadband and
mobile customers, as Three and Virgin Media apply inflation-linked in-contract
price rise terms to more of their customers' contracts during 2023/24.

 

However, awareness and understanding of these terms is very low. More than
half (55%) of broadband customers and pay monthly mobile customers (58%) 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, very few broadband
(16%) and mobile customers (12%) were both aware of the price rise and able to
identify that it was inflation-linked with an additional percentage. 2 

 

We also found that even 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.

 

Between January and October 2023, Ofcom received over 800 complaints related
to price rises - almost double the volume of complaints received during the
same period in 2021 - many of which highlighted uncertainty created by
inflation-linked price rises.

 

Our conclusions

 

We have provisionally concluded that inflation-linked mid-contract price rise
terms can cause substantial amounts of consumer harm by complicating the
process of shopping for a deal, limiting consumer engagement, and making
competition less effective as a result.

 

These terms also require customers to unfairly assume the risk and burden of
financial uncertainty from inflation, with tangible impacts on their ability
to manage costs at a time when household budgets are already stretched to the
limit.

 

Toughening our rules

 

To tackle this problem, we propose to introduce a new rule requiring that any
price written into a customer's contract would need to be set out in pounds
and pence, prominently and transparently, at the point of sale. That includes
being clear about when any changes to prices will occur.

 

This would prevent providers from including inflation-linked, or
percentage-based, price rise terms in all new contracts.

 

Dame Melanie Dawes, Ofcom's Chief Executive, said: "At a time when household
finances are under serious strain, customers need prices to be crystal clear.
But most people are left confused by the sheer complexity and unpredictability
of inflation-linked price rise terms written into their contract, which
undermines customers' ability to shop around.

 

"Our tougher protections would ban this practice once and for all, giving
customers the clarity and certainty they need to secure the best deal for
their needs and budget."

 

Next steps

 

We are consulting on this proposed new requirement until 13 February 2024, and
plan to publish our final decision in spring 2024.

 

Subject to responses, we intend for the new rule to come into effect four
months after the publication of our final decision. This period reflects our
concern about the scale of consumer harm balanced against the need to give
providers sufficient time to make the necessary changes to their processes and
business plans.

 

Enforcement action

 

Separately, we have been investigating whether phone and broadband companies
complied with our previous rules between March 2021 and June 2022. We have
found that a small number of providers may not have given some customers clear
information about price rises at the right time, creating a potential
compliance concern.

 

We have discussed these concerns with the relevant providers and secured
refunds for some affected customers. We will continue to discuss our remaining
concerns with these providers, escalating to separate, targeted enforcement
action if necessary.

 

Social tariff take-up doubles in a year

 

Ofcom has also today published its annual Pricing Trends report, which this
year includes the latest take-up and awareness figures for social tariffs.

 

Social tariffs are cheaper broadband and phone packages for people claiming
Universal Credit, Pension Credit and some other benefits. Some providers call
them 'essential' or 'basic' broadband.

 

Take-up of social tariffs increased to 380,000 in September 2023, up from
147,000 a year earlier, meaning more customers are benefitting from the
savings the tariffs offer. However, awareness among eligible customers remains
a challenge. Just over half (55%) of eligible households remain unaware of
social tariffs; and while take-up is improving, it remains low as a proportion
of all eligible households (8.3%).

 

For the first time, we have published take-up figures for each of the largest
providers of broadband social tariffs.

 

BT has the largest share of broadband customers taking a social tariff (72%),
followed by Sky (13%), Virgin Media (6%), Vodafone (4%), KCOM (1%) and Shell
Energy (0.3%). These proportions are partly a reflection of the length of time
over which different social tariff products have been available. TalkTalk is
the only major broadband provider not to offer a social tariff.

 

Please visit the Ofcom website for further information:

·    News centre:
https://www.ofcom.org.uk/news-centre/2023/ban-on-inflation-linked-mid-contract-price-rises

·    Consultation document:
https://www.ofcom.org.uk/consultations-and-statements/category-1/review-of-inflation-linked-telecoms-price-rises

·    Pricing Trends report:
https://www.ofcom.org.uk/research-and-data/multi-sector-research/pricing

 

END

 

Notes to editors

 

1.    Full-fibre broadband is now available to over half of UK homes, where
just 6% could access it five years ago. Gigabit-capable broadband is available
to 75% of UK homes. 5G coverage was available to 85% of premises outdoors in
April 2023, up from 69% in May 2022. Between November 2019 and March 2023,
average download speeds increased from 42.1 Mbit/s to 69.4 Mbit/s. Between
2018 and 2022, average monthly household broadband data use increased from 240
GB to 482 GB.

 

2.    Nationally representative samples of adults aged 16+ in the UK were
surveyed in January 2023 (4,213) and October 2023 (4,232).

 

 

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