Ofcom is to stop telecoms companies from levying mid-contract price rises and introduce tougher protections for customers by banning this practice The new ruling woud apply to new contracts.
A new rule would require that the actual amount of any price written into a customer’s contract would need to be set prominently and transparently, at the point of sale. This would include being clear about when any changes to prices will occur and would prevent providers from including inflation-linked, or percentage-based, price rise terms in all new contracts.
“Most people are left confused by the sheer complexity and unpredictability of inflation-linked price rise terms written into their contract” – OFOM CEO Melanie Dawes
“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” said Ofcom CEO Dame Melanie Dawes.
Melanie Dawes: people are left confused by the sheer complexity and unpredictability of inflation-linked price rise
An Ofcom statement said:
“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: said an Ofcom statement.
Ofcom says confusing price rise terms risk undermining competitive market but 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 per cent have become significantly more widespread, undermining customers’ understanding of what they will pay.
Ofcom’s analysis showed 36 million mobile customers were on contracts tht were 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
“More than half of broadband customers and pay monthly mobile customers do not know what inflation rates measure”
“However, awareness and understanding of these terms is very low. More than half of broadband customers and pay monthly mobile customers do not know what inflation rates measure. 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. This was almost double the volume of complaints received during the same period in 2021.
“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”.
Claudio Costa, Senior Director, Telco, at NTT DATA UK&I, said:“Telecom companies must see this as a chance to innovate and adapt. AI and automation create more efficient operational models ahead of the contract being signed, rather than during the contract. This helps maintain customer trust while building competitive advantage. Rethinking pricing structures can provide an opportunity to reassess our approach to sustainability and customer-centricity”.
