Ofcom: breaking up should be easy to do

Source: Ofcom

"Consumers entering into fixed term telecoms contracts must get a fairer deal," Claudio Pollack, Ofcom's Consumer Group Director, said.

Contracts are currently skewed to benefit the providers.

If companies choose to raise prices their customers have to pay, either by accepting the increase or in the form of a fee for leaving their contract.

Under the new guidelines, which will come into force in late January, they'll be able to leave for free.

Reinterpreting rules

To be clear, Ofcom haven't changed their rules on contracts: just the way that they interpret them.

Since January this year, all communications providers that want to increase their prices had to give their customers:

• At least a month notice and
• Let them leave for free if the changes are of material detriment

The obvious problem has long been that your material detriment, is your mobile provider's reasonable price increase. Tomato, tomato.

Sometimes, for example when Sky put up prices 18% in August last year, the rule did allow customers to leave for free.

Often, however, companies chose to skirt the rules by putting prices up slowly but only a little each time.

Let's call the whole thing off

So the difference is that now material detriment just means any price increase or contract change.

From January, phone and broadband providers can't slowly put up prices by a few pennies, unless they give you the option to leave quickly and for free.

And note that this doesn't just go for price increases.

Ofcom say that they considered that networks might get around the new guidelines by changing contracts - say, cutting your monthly minutes or texts in a mobile contract or your monthly usage allowance in a broadband contract - effectively replacing a price increase with a service decrease.

The regulator has nipped that in the bud by giving such contract changes the same material detriment status.

The bad news

There two bits of bad news here, however.

First, these new guidelines come into force three months from today: so January 23rd 2014.

Only contracts which begin after that point will be affected by these new rules.

Contracts that have already started, or begin between now and late January, will continue to follow the old rules.

That means a price rise may or may not allow customers to break their contracts for free, depending on whether it is considered to cause material detriment.

Second, while Ofcom have expanded their definition of price increase to include contract changes it still doesn't cover all price increases.

Non-subscription price increases will still be subject to the old guidelines even after January.

In other words, providers are free to change the price of services that don't form part of your main contract: the optional extras you can pay for, like calls to premium numbers.

Ofcom have stopped short in this case because, in the consultation about this change, networks argued that the wholesale prices they pay for these types of services can really vary.

Ofcom seem to have agreed that, in this case, networks have no choice but to pass their costs on to their customers.

Is that clear?

Ofcom also took steps today to run another sneaky trick off at the pass.

Companies should be taking real steps to ensure that consumers are informed about price rises, it said, and of their right to leave the contract as a result.

Letters should have the words 'contract change' on the front of the envelope and emails should have it in the subject line.

Less specifically, the regulator says that these notifications should be "clear and easy to understand".

It's likely that consumer groups will press for more clarity on ensuring that bills are clear.

Last week, for example, Uswitch launched a campaign for mobile phone and broadband providers to start issuing annual statements, just as energy companies now have to.

Annual bills would allow consumers to see how well their contract is suited to their actual usage, the consumer site argued, and would promote switching in two marketplaces which are increasingly dominated by just a few big players.

39% of mobile users and 40% of broadband users questioned in a poll by the site said that annual statements would encourage them to switch.

Problems with 'clear' billing recur here too, however.

What's unclear currently is how the regulator could effectively bring about bills and notices that are easier to understand and, even more important, ensure that customers actually take the time to read them.