Ofcom to review mid-contract price rises

Soaring inflation has led annual price rises from broadband and mobile companies to reach in excess of 14% in 2023, and even 17.3% in some cases.

Yet, despite existing guidance from Ofcom clearly stating providers are allowed to increase prices by an inflationary measure, they're now asking whether these increases provide customers with "sufficient certainty and clarity about what they can expect to pay".

Following on from an investigation into the transparency of mid-contract price rise clauses at the time of sign up, the regulator is now reviewing whether inflation-linked rises are fair at all.

Source: Ofcom

Mid-contract price rise review

The latest review from Ofcom will look at the practice of inflation-linked mid-contract price rises and whether they fairly allow customers to predict the potential cost of any future price rises.

This is a welcome, if somewhat delayed, move from Ofcom, as I first wrote about the issue of the ambiguity of inflation-linked price rises over a year ago.

While there's a definitive unfairness to above inflation price rises in itself, Ofcom's guidance requires that price rises be "transparent" and that the "subscriber can properly be said to have agreed on an informed basis".

It's arguable, and clearly Ofcom are now recognising this, that price rises based on a yet unknown number - like CPI or RPI - can't be known in advance and therefore it can't be said that a customer has agreed to that price rise on an "informed basis".

In addition to the logical arguments however, Ofcom have also revealed in their preliminary research, that of the two-thirds of customers who are aware of annual price rises, half don't understand how the rise is calculated, and half don't know what CPI and RPI stand for.

So, not only are inflation-linked price rises unpredictable and arguably already contravene Ofcom's existing guidelines, they're also hard to understand and too technical.

Outcomes

While BT, Virgin Media, and Sky have all confirmed their annual price rises for 2023, Hyperoptic are continuing to champion fixed price broadband and have been celebrating the announcement by Ofcom.

Yet, likely outcomes may not result in the outright ban of mid-contract price rises, as Ofcom notes how consumer law "does not prevent companies from increasing their prices during the contract period, provided they do so fairly".

They also highlight how telecoms companies face their own rising prices, including the need to invest in network development, which undoubtedly ties into the Government's target of 99% full fibre coverage by 2030 which providers like BT and Virgin Media are racing to achieve.

What we may see however is tighter rules around how price rises can be implemented, and could well mean a move away from inflation-linked rises to ones that are based on a specified amount, e.g. £5.

Particularly, as Ofcom is finally recognising, "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." Which has been my main argument against mid-contract price rises and the basis of the Choose campaign on the subject since January 2022.

Investigations

Ofcom is also in the process of investigating providers for potentially not being upfront enough about annual mid-contract price rises at the point of sale.

Prompted by customer complaints received by the regulator, they'll be looking at contracts taken out between 1 March 2021 and 16 June 2022 to check whether customers were provided with sufficiently clear information about mid-contract price hikes.

The investigation could result in further probes into individual providers as well as enforcement action for any company failing to meet Ofcom's guidelines.

In June 2022, Ofcom also bought in new rules that customers must be provided with a short, one-page summary of the main terms of their deal, before they sign up.

The short and simple contract rules include providing cost examples of future annual price rises using the most recent figure of inflation. However, while this helps to explain how the price rises work, it skims over the issue of accurately predicting future inflation levels and whether that's a realistic ask of an everyday consumer.