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Mobile phone providers could be banned from linking price rises to runaway inflation figures under new proposals from Ofcom.
The regulator says telecoms customers must be told upfront in pounds and pence about any price rises their provider includes in their contract. With most major phone, broadband and pay TV companies now including mid-contract price rises linked to uncertain future inflation, Ofcom say it is now concerned that customers’ contracts do not provide sufficient certainty about the prices they will pay.
Competition helps keep prices down. Although some broadband 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. 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.
Ofcom’s 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. It is estimated 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.
It was 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.
Ofcom has 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.
To tackle this problem, Ofcom is proposing 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.”
