A new Ofcom review means that broadband customers who choose not to sign up to contract deals will make total savings of £270 million annually from pricing changes after it was found that broadband firms are failing to protect customers from excessive out-of-contract prices.
The communications regulator says that in September, it secured commitments from BT, TalkTalk and Virgin Media to reduce prices automatically for vulnerable customers who are out of contract.
In an update, Ofcom says it has now secured commitments from EE, Plusnet, and Sky to do the same. EE and Plusnet have also now joined BT, Sky and TalkTalk in deciding to give all existing customers access to new customer prices.
In total, it is estimated that the pricing changes made by providers since the review was opened could ultimately benefit all out-of-contract customers by over £270million per year. This would address more than half of the nearly £500 million difference in what out-of-contract customers pay compared to average prices, this could ultimately benefit around one million vulnerable out-of-contract customers by an average of around £70 each per year.
Jane Rumble, Ofcom’s Director of Consumer Policy, said “We’ve already made it easier for people to get a discount and save money. But we’re concerned some customers who find it harder to seek better deals are missing out.”
“So we’re pleased providers have done the right thing by cutting vulnerable customers’ bills. We’re now calling on them to go further and take extra steps to identify and support customers who might be vulnerable.”
The new measures follow Citizens Advice’s super complaint on the loyalty penalty to the Competition and Markets Authority (CMA) in September 2018 calling for it to consider how this could be fixed in the mobile, broadband, home insurance, mortgages and savings markets.
The CMA’s response to the super-complaint, the following December, said that it agreed and had found damaging practices by firms that exploit unsuspecting customers. The CMA said it wanted to see urgent action. The CMA provided a further update in July 2020, where it recognised the impact of coronavirus on regulators timetables but said that consumers should not continually have to be ‘on their guard’ to ensure they are not being ripped off as contracts come up for renewal.
Research in 2018 by Citizens Advice found that across five essential markets consumers lose around £4 billion a year to the loyalty penalty (or £11 million a day with eight in 10 people are paying a significantly higher price, in at least one of the markets, for remaining with their existing supplier.
Responding to Ofcom’s broadband announcement, Dame Gillian Guy, Chief Executive of Citizens Advice, said “We’ve found that for far too long broadband customers have been penalised for staying loyal to their providers, so it’s encouraging to see Ofcom secure some action from all six major companies.”
“We agree with Ofcom that companies still need to do more. Any one-off commitments must turn into permanent solutions to ensure the loyalty penalty is stamped out.”
“The impact of coronavirus means it’s vital regulators do as much as they can to help relieve financial pressure on struggling households. Government must make sure that Ofcom has the powers necessary to implement stronger measures that work alongside these voluntary commitments, such as implementing social tariffs.”