The UK telecoms regulator has launched an investigation into the industry-wide practice of hitting broadband and mobile customers with inflation-busting price rises of up to 17% and could bring in tougher protections against hefty mid-contract increases.
Ofcom, which in December launched a separate investigation into the sales tactics used by telecoms companies, said it could intervene to ensure consumers struggling with the cost of living crisis have “greater clarity and certainty” over how much they are likely to pay over the course of their contract.
The UK’s biggest companies in the sector – including BT, EE, Vodafone, Virgin Media O2 and TalkTalk – are all preparing to implement above-inflation mid-contract price increases in the spring which mean they will make billions of pounds more annually.
The companies calculate the increases using various mechanisms, usually inflation measured by either the consumer prices index (CPI) or retail prices index (RPI) plus an extra increase on top of between 3.4% and 3.9%.
In December, the most common month for deciding the rate of rises for the following spring, the CPI was 10.5% while the RPI was 13.4%. This means that customers face increases of between 14% and more than 17% this year.
“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,” said Cristina Luna-Esteban, the director of telecoms consumer protection at Ofcom. “Customers need certainty and clarity about what they will pay over the course of their contract.”
Ofcom said research found that a third of UK mobile and broadband customers do not know that their provider can increase prices mid-contract. Of those that do know, about half have no idea how the rises are calculated. Nearly half of all telecoms customers do not know what CPI and RPI measure.
Most mobile and broadband companies added mid-contract price increase clauses in 2021, at a time when inflation was running at only 1.5%.
However, with the rate now running at a 40-year high, the rises have a significant impact on finances at a time when household budgets are being stretched by the cost of living crisis.
“Inflation-linked price rises can be unclear and unpredictable,” Luna-Esteban said. “So we’re concerned that providers are making it difficult for customers to know what to expect. At a time when household finances are already under significant strain, it is vital for customers to have sufficient certainty about the prices they will pay over the course of their contract. 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.”
The regulator said its review would assess whether tougher protections are needed, with its findings due to be published later this year.
Ofcom said consumer law did not prevent telecoms companies from implementing the practice, although it is not allowed in other utility sectors such as electricity and gas.
A few telecoms operators use other mechanisms such as giving customers 30 days’ notice of a price rise, with a right to leave for another provider penalty-free, while others specify fixed rates in contracts at the point of signing.
James Fredrickson, the policy director at the broadband firm Hyperoptic, said: “Customers should be made fully aware, from the beginning of their sales journey, of what they will have to pay for the length of their deal. There can be no more hiding behind small print. We’ll be proposing this principle in response to Ofcom’s review.”
The UK advertising watchdog launched its own investigation in September into whether telecoms companies were misleading consumers about inflation-busting bill increases when promoting deals in their marketing campaigns.
“At a time when household finances are already under significant strain, it is vital for customers to have sufficient certainty about the prices they will pay over the course of their contract,” said Ofcom. “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.”