Ofcom UK BAN Some Mid-Contract Broadband and Mobile Price Hikes UPDATE6

The UK communications regulator, Ofcom, has today published the outcome of their review into whether mid-contract price hikes that are linked to inflation give mobile and broadband ISP customers enough certainty and clarity about what they can expect to pay. Suffice to say, they’re effectively banning the practice.

Mid-contract price hikes are by no means a new phenomenon in this market, but over the years we’ve seen somewhat of a change as most of the major fixed broadband and mobile operators have since chosen to adopt the same approach that BT first pioneered in 2020 (here). As a result, this year saw providers hit consumers with inflation busting annual mid-contract hikes of 14-16% (here).

In the past, most of the major providers preferred to announce a general price increase each year (often reflecting an average increase of 4-6%). But these days they’ve almost all added a new policy into their terms that enables them to increase their prices each year by nearly 4% plus the rate of annual inflation (CPI or RPI) – as published in a particular month (usually January or February).

The problem is that such policies are often hidden away in the small print and many consumers can find them confusing (e.g. they’re not familiar with how ‘inflation‘ actually works or the meaning of terms like CPI or RPI). The fact that CPI/RPI is a highly variable figure, which even the Bank of England (BoE) sometimes gets very wrong in its forecasts, certainly doesn’t help.

Suffice to say that many consumers would like to see the practice of imposing mid-contract price hikes being banned, which could mean that those who take out a new broadband or mobile contract might enjoy the same fixed monthly price for the entire length of their term or at least be given more certainty of future changes. Alternatively, others feel as if just giving people the right to exit their contract, penalty free, whenever an above-inflation hike is introduced, would be enough.

Ofcom’s Decision

Firstly, we should point out that the Advertising Standards Authority (ASA) have already introduced new guidelines to cover this issue (here), which effectively requires providers to be clearer and more transparent with how they present their packages and prices to consumers. But the ASA’s powers are limited, and they cannot outright ban the practice or introduce wider changes, which is where Ofcom’s recent review of the policy comes in.

Ofcom’s review looked specifically at the practice of in-contract price rises linked to inflation and percentage changes. But it’s important to note that general consumer law does NOT prevent companies from increasing their prices during the contract period (i.e. the regulator is limited in how it can respond too).

Nevertheless, the regulator has today said they’re effectively “banning this practice“. The move won’t stop mid-contract hikes completely, but it will require providers to tell customers precisely what any such hikes will be when they sign up (in pounds and pence) and that rules out changes linked to unknown future inflation values or percentages.

The regulator’s review found that consumers have “low awareness and understanding of inflation-linked price rises” and are “unable to estimate reliably what they will pay”. Ofcom also found that people do not typically consider future inflation-linked price rises when choosing a contract. When they do, they often do not understand them fully and find it difficult to estimate what the impact could be on their payments.

Ofcom said 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.

“We are concerned that inflation-linked price rise terms not only make it hard for people to find the best deal, but also make competition less effective. Further, they require customers to assume the risk and burden of financial uncertainty from inflation, with tangible impacts on their ability to manage costs,” added Ofcom.

Ofcom’s Changes to Mid-Contract Price Hikes

Wherever telecoms or pay TV providers apply in-contract price rises, they must set these out clearly and up-front, in pounds and pence, when a customer signs up

We are proposing to amend our General Conditions to introduce this rule. Where a telecoms or pay TV company provides for a change to the monthly price of their service during the contract period, they must set that changed price out at the point-of-sale in pounds and pence (the £/p requirement). Providers should also set out when any changes in monthly price will occur. Providers will be required to ensure this information is drawn prominently to customers’ attention before they are bound by the contract.

The £/p requirement would stop providers from including inflation-linked, or percentage-based, price rise terms in new contracts. Providers would be able to increase their prices during the contract period, but any price rises that they write into the contract would need to be set out in pounds and pence, prominently and transparently, at the point-of-sale.

We propose that the requirement would come into effect four months after the publication of our final decision in 2024. This implementation period reflects our concern about the scale of consumer harm that may result from providers continuing to sign customers up to inflation-linked price rise terms, while giving providers sufficient time to make the necessary changes to their processes and business plans.

The change means that, in the future, mobile and broadband providers will be able to present their usual monthly subscription price (e.g. £30 per month), but any price hikes must also be spelled out alongside and include the dates when they become applicable. For example:

The change will be a significant shift for the industry, particularly when we consider 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. Ofcom estimates that these numbers were due to grow further, to around six in ten of both broadband and mobile customers, as Three UK and Virgin Media begin to apply inflation-linked in-contract price rise terms to more of their customers’ contracts during 2023/24.

Dame Melanie Dawes, Ofcom’s CEO, 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.”

Ofcom will now consult on these changes until 13th February 2024, and then plan to publish their final decision in spring 2024. Subject to responses, the regulator intends for the new rule to come into effect 4 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,” added the regulator. Technically, this may come too late to prevent the next set of hikes, but on the other hand, ISPs will now face pressure to act before the next set of hikes in early 2024.

Separately, Ofcom have been investigating whether phone and broadband companies complied with their 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,” said the regulator.

The good news is that they’ve since secured refunds for some affected customers and will continue to “discuss our remaining concerns with these providers, escalating to separate, targeted enforcement action if necessary.”

UPDATE 11:26am

The first ISP to respond today is TalkTalk, which highlights how Ofcom are only changing the rules for the retail side of service provision. But the regulator neglects that ISPs still have to tackle the realities on the wholesale side too, which are often still be linked to inflation.

Tristia Harrison, TalkTalk Group CEO, said:

“For 20 years TalkTalk has focused on delivering value for customers in the vibrantly competitive UK broadband market. If Ofcom is to push ahead with tying industry’s hands on CPI indexed price inflation, we urge them to urgently review similar CPI inflation for BT Openreach at a wholesale level. The link between the two is obvious; is essential for protecting both consumers and competition, and needs addressing.”

TalkTalk has singled out Openreach here as their primary supplier, but it should be said that this issue could also apply to many other network / wholesale suppliers. Openreach are indeed aligned to CPI for inflationary rises, but unlike retail ISPs they don’t do the CPI + X% model (usually they just do a CPI increase) or apply such changes mid-contract. Ofcom’s next review of the wholesale market is due to take place 2026, but we’d be surprised if they changed any of this.

The provider also suggests that less than two thirds of their customers actually received the price increase in 2023, due to things like exemptions for vulnerable customers and some fixed contracts. Despite this, they were still required to pay the increased wholesale cost (they rose by 11.1%) for each connection.

UPDATE 12:04pm

Now we have a comment from Zen Internet too.

Richard Tang, CEO of Zen Internet, said:

“Broadband companies have been tricking customers for years by advertising one price but then hiking the price mid-contract in a way that customers don’t understand. It’s great to see that Ofcom has now taken those companies to task by proposing to ban this unethical practice. Zen fully supports Ofcom’s proposal, as it will provide consumers with much greater clarity and certainty over what they will pay for their broadband services.”

UPDATE 2:06pm

Openreach has responded.

An Openreach spokesperson said:

“Openreach is heavily regulated and our prices came down for more than a decade as demand for broadband and data exploded. More recently though, Ofcom has allowed us to link some of our prices to inflation to give us the headroom to invest in faster, more reliable Full Fibre broadband throughout the UK. That’s something the whole industry agreed needs to happen and it involves more than £15 billion investment in our new network.

As a wholesaler, we’re just one part of the value chain, but we understand that our prices can impact consumers, so we listen to and consult with our wholesale customers at length on our pricing plans. Inflation affects us like any business, but we want to continue investing to make sure the whole of the UK benefits from the better broadband network we’re building.”

UPDATE 13th Dec 2023 @ 11:07am

Hyperoptic has sent in a comment too.

Dana Tobak, Hyperoptic’s Founder & CEO, said:

“This is a great step forward in protecting broadband buyers. At last, the big broadband providers will have to be honest about their pricing, and stop hiding behind small print and acronyms. We called for this change back in November 2022, based on in-depth research which showed just how confusing and misleading inflation-linked price rises are for consumers. We’ve never hit customers with mid-contract price hikes, and we know transparency of cost is vital – especially during the cost-of-living crisis.”

UPDATE 13th Dec 2023 @ 2pm

Rural ISP Quickline has commented too.

Sean Royce, CEO of Quickline, said:

“We wholeheartedly welcome the move by Ofcom to ban unfair mid-contract price rises, in the interests of the consumer.

We have said for a long time now that these hikes are not fair, they are not appropriate and they are not right, more so now than ever before with the cost-of-living crisis, when every penny points.

Consumers need the reassurance that the price they sign up for is the price they will pay, in pounds and pence and for the full duration of their contract.

Earlier this year we reaffirmed our two-year price freeze, removing the fear of cost hikes for our customers at a time when major broadband providers significantly increased their tariffs – many by far more than inflation.

This announcement by Ofcom will go some way to providing that peace of mind.”