Ofcom Proposes Ban On ‘Inflation-Linked’ Mid-Contract Price Hikes

Ofcom is proposing new consumer protection plans, in order to make contract pricing more transparent for customers.

The UK regulator said it is proposing a ban on telecom operators and ISPs from making inflation-linked price rises mid-contract.

Ofcom said that it is proposing the new rules because it is “concerned” about the fact that most major phone, broadband and pay TV companies are currently including mid-contract price rises.

Price hikes

“We are concerned that customers’ contracts do not provide sufficient certainty about the prices they will pay,” said the regulator. “So we are proposing to introduce tougher protections for customers by banning this practice.”

The regulator said that consumers must be told upfront in pounds and pence about any price rises their provider includes in their contract.

The regulator noted that competition helps keep prices down. Although some broadband prices have increased this year, Ofcom said over the last five years, average prices for broadband and mobile services in the UK have fallen in real terms, despite operators upgrading their networks to increase speeds etc.

But Ofcom feels that for competition to work, consumers must be able to shop around with confidence. It pointed out that in recent years, pricing practices where providers impose an annual rise linked to unpredictable future inflation, plus an additional percentage of typically 3.9 percent, have become significantly more widespread, undermining customers’ understanding of what they will pay.

For example, 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.

Ofcom said it estimates 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.

Consumer complaints

Another concern for Ofcom is that consumer awareness and understanding of these terms is very low, and people often do not understand mid-contract price hikes and find it difficult to estimate what the impact could be on their payments.

Ofcom noted that between January and October 2023, it had received over 800 complaints related to price rises – almost double the volume of complaints received during the same period in 2021.

“We have 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,” said the regulator.

It said 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.

New rules

Therefore Ofcom said it proposes 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.

Ofcom is now consulting on this proposed new requirement until 13 February 2024, and should publish its final decision in spring 2024.

Separately, Ofcom has been investigating whether phone and broadband companies complied with its previous rules between March 2021 and June 2022. It has 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.