Ofcom launches review of inflation-linked mid-contract price rises
Ofcom has launched a review of inflation-linked phone and broadband price rises that hit customers mid-contract amid concerns that they are “unclear and unpredictable”.
The telecoms regulator said it is concerned about the “degree of uncertainty” consumers face over future price rises specified in contracts on the basis of inflation.
The move follows consumer groups urging broadband firms to drop penalties for customers leaving mid-contract because of fears of impending “exorbitant” price rises or exit fees of more than £200.
📢 We’ve launched a review into inflation-linked mid-contract price rises by telecoms providers.
This will look at the extent to which customers know what they’re signing up to, and whether tougher protections are needed.
Read more: https://t.co/gwBVloTEPB pic.twitter.com/FkS1NT55G0
— Ofcom (@Ofcom) February 9, 2023
Millions of broadband and mobile phone customers can expect to face monthly bill increases of at least 14% from April.
Providers often link their annual price rises to January’s consumer price index (CPI) or the retail price index (RPI). Despite a slight easing this month, both are near the highest they have been for 40 years, with the latest CPI at 10.5% and RPI at 13.4%.
But Ofcom said the unpredictability of inflation rates means it is difficult for consumers to know – months in advance – what price rises they will face when entering a contract.
The regulator warned it is “vital for customers to have sufficient certainty about the prices they will pay over the course of their contract” when households are already under significant strain.
“Even for those who do understand inflation and are aware of its current level, it is not possible for them to know what it will be in the future,” it said.
Research has found that around a third of mobile and broadband customers do not know if their provider could increase their price, and among those who do, around half do not know how this will be calculated.
Almost half of all customers do not understand CPI and RPI.
General consumer law does not prevent companies from increasing their prices mid-contract, and many – but not all – do so.
Some give customers 30 days’ notice and the right to leave without a penalty, while others specify price rises in customers’ contracts from the start.
Cristina Luna-Esteban, Ofcom’s director of telecoms consumer protection, said: “Customers need certainty and clarity about what they will pay over the course of their contract, but inflation-linked price rises can be unclear and unpredictable so we’re concerned that providers are making it difficult for customers to know what to expect.
“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.
“In the meantime, there are some simple things many people could do today to cut their bills.
“Millions of customers are either out of contract or with a provider that lets them walk away if prices go up. So we’re urging everyone to check their account and see what their options are.”
Ofcom said it expects to publish its initial findings later in the year.
Citizens Advice director of policy Matthew Upton said: “Ofcom is right to shine a light on this practice, but consumers need rapid action before inflation-busting price hikes kick in this April.
“As we all pull together in a cost-of-living crisis, companies should do everything in their power to help consumers. That means making pricing crystal clear.
“Worryingly, we found one in three people currently on contracts with rises linked to CPI have never heard of it.
“What consumers really need is for Ofcom and the Government to ban mid-contract price rises.”