The UK telecoms regulator, Ofcom, has today finalised their earlier proposal to BAN phone, mobile, pay TV and broadband ISPs from doing mid-contract price hikes that are linked to inflation and percentage changes. The plan is to introduce this change from 17th January 2025, before the next round of annual price increases typically hit.
Back in 2020 most of the major providers preferred to announce a general price increase each year, which usually averaged around 4-6%. But that changed after BT adopted a key policy and now almost all of them (except Sky Broadband) increase their prices each year by nearly 4% plus the rate of annual inflation (CPI or RPI) – as published in a particular month (usually January or February).
Initially, the change wasn’t such a problem because inflation remained low, but it’s been far from low over the past couple of years. In 2022 most consumers saw their prices rise by around 9% (here) and in 2023 that hit over 14% (here), although falling inflation meant that the hikes for 2024 weren’t quite that and were closer to 7-8% (here). But these weren’t the only problems with inflation linked price hikes.
The policy also made it harder for customers to exit their contracts penalty free because the providers could argue that they’d already given prior notice of the increases in the small print. On top of that, many consumers found the policy confusing (e.g. not being familiar with how “inflation” actually works or the meaning of terms like CPI or RPI).
The Intervention
The regulator arguably took too long to respond to the concerns, but their review eventually found that consumers have “low awareness and understanding of inflation-linked price rises” and are “unable to estimate reliably what they will pay”. Ofcom also found that people do not typically consider future inflation-linked price rises when choosing a contract.
Ofcom said more than half (55%) of broadband customers and pay monthly mobile customers (58%) do not know what inflation rates such as CPI and RPI measure. And of those who are with providers that use inflation-linked price rises, very few broadband (16%) and mobile customers (12%) were both aware of the price rise and able to identify that it was inflation-linked with an additional percentage.
In response, the regulator announced a proposal in December 2023 to “effectively ban” the practice (here). Instead, wherever telecoms or pay TV providers apply in-contract price rises they must now “set these out clearly and up-front, in pounds and pence, when a customer signs up“. Put another way, providers would be able to present their monthly subscription price (e.g. £30 per month), but any mid-contract price hikes must be spelled out alongside and include the dates when they will become applicable.
Ofcom has spent the past few months consulting the industry on these proposals, and they’ve today announced their intention to adopt them into their rules (General Conditions). The announcement confirms that the regulator will formally begin to enforce this change on the market from 17th January 2025.
Some providers, such as TalkTalk, complained that the move was unfair because Ofcom hadn’t applied the same rules to wholesale providers – they singled out Openreach as an example. But unlike retail providers, Openreach don’t do the CPI + X% model (usually they just do a pure inflation increase) or apply such changes mid-contract. Likewise, it’s not as if other providers (e.g. smaller players) don’t have to deal with variable supply side costs already, yet many of them still manage to avoid mid-contract hikes.
Cristina Luna-Esteban, Ofcom’s Telecoms Policy Director, said:
“With household budgets squeezed, people need to have certainty about their monthly outgoings. But that’s impossible if you’re tied into a contract where the price could change based on something as hard to predict as future inflation.
We’re stepping in on behalf of phone, broadband and pay TV customers to stamp out this practice, so people can be certain of the price they will pay, compare deals more easily and take advantage of the competitive market we have in the UK.”
The change will naturally increase the risk for providers that typically adopted the CPI/RPI + X% model to annual hikes. But providers still have to balance that higher risk through their pricing, which could well result in bigger price increases to compensate for greater uncertainty (the longer the contract term, the greater the uncertainty). So none of this will make services cheaper, only clearer. In some cases, it may even make them more expensive than the old approach.
Some providers, such as the BT Group ISPs (e.g. BT, Plusnet and EE) and Vodafone, have already responded to this by introducing a flat £3 per year increase on broadband and a c.£1-£2 increase on mobile. Such a policy is much clearer, but it doesn’t scale well across differently priced packages (i.e. those on entry-level services will be hit harder) and is unlikely to damped calls for an outright ban on mid-contract hikes – something we’d support.
Speaking of which, if service providers can now predict their increases ahead of time, then it arguably increases the case for just baking those planned hikes into a fixed price contract. At this point it’s worth remembering that not all providers adopt the same approach as the biggest players and many smaller ISPs, particularly newer alternative networks (altnets), often already promote packages with simple fixed price terms.
Finally, Ofcom’s changes will only impact new or recontracting terms, which means that existing customers will need to change (or re-contract) their current package in order to be covered by the new policy.
Statement: Prohibiting inflation-linked price rises
https://www.ofcom.org.uk/../review-of-inflation-linked-telecoms-price-rises