Ofcom plans to ban inflation-linked price rises on mobile and broadband contracts
Ofcom says mobile phone, broadband and pay-TV companies must tell customers upfront in pounds and pence about any price rises included in their contract.
It has become common practice for mobile and broadband contracts to impose an annual rise linked to unpredictable future inflation, with many saying that increases will be ‘inflation plus 3.9%.’
This has left mobile and broadband customers being hit with mid-contract rises that were difficult to predict when taking out contracts.
New consumer protection proposals outlined today by the regulator would ban this practice of linking price rises to runaway inflation.
Alex Neill, co-founder of Consumer Voice, said:
‘These proposals from the regulator don’t go far enough. While annual monetary price increases are clearer than percentages, fixed price contracts should mean fixed.
‘Consumers shouldn’t be left digging through the fine print when the marketing leads them to believe the price will remain the same.’
Today’s announcement comes a week after a new £3.3 billion lawsuit was launched against the four biggest mobile phone companies for overcharging consumers on up to 28.2 million mobile phone contracts.
Millions of customers on contracts subject to mid-contract price rises
More than half of mobile customers (36 million) and around four in 10 (11 million) broadband customers were on inflation-linked contracts in April this year, Ofcom’s analysis discovered.
Yet a survey for the regulator found customers of these providers had very little knowledge of the details.
It said that only 16% of these broadband customers and 12% of mobile customers knew that their costs could rise, and that any increase would be linked to inflation with an additional percentage added on top.
Runaway inflation greatly increasing customer bills
Ofcom received 800 complaints from customers between January and October 2023 – many of which highlighted concerns and confusion about inflation-linked prices rises.
Inflation – which is a rough measure of how quickly the prices of things that average people buy are rising – has run rampant over the last two years.
One inflation measure, Consumer Price Inflation (CPI), peaked at 11.1% in October last year. That means that between November 2021 and October 2022 the prices of what the average Briton bought rose on average by 11.1%.
For many mobile and broadband customers this has greatly increased their monthly payments.
New rules for giving ‘clarity and certainty’ to mid-contract price rises
In an example provided by Ofcom to demonstrate the new rules, it said a previous advert saying that a plan cost £30 initially but would rise by CPI plus 3.9% would have to change.
The new advert on a provider’s website would read: “Monthly subscription price: £30.00 until March 31, 2024. Increasing to £31.50 on April 1, 2024 and £33.00 on April 1, 2025.
Ofcom chief executive Dame Melanie Dawes said: ‘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.
Door still open for mid-contract price rises
Matthew Upton, acting executive director of policy and advocacy at Citizens Advice, said: ‘Banning inflation-linked, mid-contract price rises is a much-needed move from Ofcom.
‘Every day our advisers hear from people whose budgets are pushed to the limit. It’s so much harder to manage your money with unpredictable mid-contract surges in the mix.
‘But these proposals still leave the door open to providers putting ‘prices may vary’ small print in their contracts. While consumers can technically leave penalty free, we know that this is not the reality.’
Richard Neudegg, director of regulation at Uswitch.com, said: ‘In a tough economic climate, it’s vital for consumers to have full transparency over what they’ll be paying for mobile and broadband.
‘Ofcom’s proposal has been a long time coming, with our own research revealing that 85% of consumers believe inflation-linked mid-contract price hikes are unfair.
‘It is important to note that these are just proposals at this stage, and even if these new rules come in, they will only apply to new contracts. So broadband and mobile customers are still in for another challenging round of price increases coming in April.’
O2 is accused of overcharging customer on mobile phone contracts and could owe customers up to £1,178 per contract. Sign up to stay updated.
Three is accused of overcharging customer on mobile phone contracts and could owe customers up to £1,817 per contract. Sign up to stay updated.
EE is accused of overcharging customer on mobile phone contracts and could owe customers up to £1,101 per contract. Sign up to stay updated.