Ofcom proposes ban on inflation-linked price rises

Telecom firms were in the red on Tuesday, as the sector’s regulator proposed a ban on inflation-linked mid-contract price rises.

Ofcom said it was looking at introducing stricter protections for consumers by ensuring they were fully aware of the prices they would pay upfront.

Competition in the industry has played a role in keeping prices competitive, and even lowering average costs for broadband and mobile services in the UK, over the last five years.

However, Ofcom said that for competition to thrive, consumers needed clarity and confidence in their ability to shop around for the best deals.

According to Ofcom's analysis of provider data as of April this year, about four in ten broadband customers and over half of mobile customers were on contracts subject to inflation-linked price rises.

That was expected to increase further, potentially affecting six in ten broadband and mobile customers, as providers like Three and Virgin Media apply inflation-linked in-contract price rise terms to more contracts during 2023 and 2024.

However, awareness and understanding of the terms remained low among consumers.

Ofcom said more than half of broadband customers and pay monthly mobile customers were unfamiliar with inflation rates such as CPI and RPI.

Additionally, very few broadband and mobile customers with providers that use inflation-linked price rises were aware of the price increases and their inflation-linked nature.

Even when customers considered the potential impact of future inflation-linked price rises when choosing a contract, Ofcom said they often struggled to estimate the effect on their payments.

That has led to a significant increase in complaints related to price rises, with Ofcom receiving more than 800 between January and October - nearly double the volume compared to the same period in 2021.

To address the issues, Ofcom said it was planning to introduce a new rule mandating any price written into a customer's contract to be presented clearly in pounds and pence at the point of sale, including information on when price changes would occur.

That, it said, would prevent providers from incorporating inflation-linked or percentage-based price rise terms in all new contracts, ensuring greater transparency and protection for consumers.

“At a time when household finances are under serious strain, customers need prices to be crystal clear,” said Ofcom chief executive officer Dame Melanie Dawes.

“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.”

Telecom plays in London were down on the news, with BT Group down 3.01% at 127.4p at 0946 GMT, and Vodafone Group off 0.84% at 67.97p.

Reporting by Josh White for Sharecast.com.