A consultation document published today by Ofcom outlines plans that would allow UK consumers to leave phone and broadband contracts without penalty if their provider imposes a mid-term price increase.
From the providers’ perspective this may seem severe, but for many consumers the move could be welcome. The regulator launched the review after receiving around 1,600 complaints in the eight months leading up to May 2012 about unexpected price rises in the middle of contracts.
The announcement follows recent price changes by some providers, such as O2’s increase to line rental of 3.2% from 28 February, which the company attributed to inflation while saying it had “always done everything possible to give you great value… but now, because of inflation, we need to change the price of your tariff”.
Ofcom’s consultation expects providers to be “clear and upfront about the potential for price increases and of the consumer’s right to cancel the contract in the event of any price increase”. That means clear notifications in contract terms and direct communication to customers when mid-term changes are possible.
Similar regulatory action has had visible effects in other countries. For example, Australian telcos were required to improve transparency after the Australian Communications and Media Authority (ACMA) handled about 200,000 complaints over a 12-month period and introduced stronger rules in July to protect consumers from unexpected charges and “bill shock”.
Bill shock — large or unexpected bills caused by changes to tariffs, usage or added charges — has been a primary cause of customer dissatisfaction. Ofcom’s proposals aim to reduce these surprises by ensuring customers understand when and how prices might change during a contract.
The consultation is open to responses until 14 March, with Ofcom planning to reach a decision in June. If adopted, the rules would give consumers an explicit right to leave fixed-term contracts without penalty when a provider raises prices mid-contract, provided the increase was not clearly notified and accepted in advance.
“Many consumers have complained to us that they are not made aware of the potential for price rises in what they believe to be fixed contracts,” said Claudio Pollack, director of Ofcom’s Consumer Group. The consultation seeks to clarify how providers must advertise and communicate contract terms so customers are properly informed.
Separate research from ISPreview suggests there is significant consumer willingness to switch providers: up to two in three UK broadband subscribers indicated they could change supplier during 2013. The top reasons cited were better customer experience (48%), lower cost (41%) and larger data allowances (33%). Less than a third (32.3%) said they had no desire to switch.
Industry commentators have noted that increased competition and continuing price reductions may strengthen consumers’ bargaining power in the coming years. As noted in recent industry analysis, ongoing price declines and improved service offerings could mean that consumers continue to benefit from better deals and more choice.
The full Ofcom consultation document is available from Ofcom’s publications. The proposals raise a practical question for consumers and providers alike: are these regulatory changes an appropriate step to protect consumers’ rights, or should customers take more responsibility for reading contract terms and small print before they sign up?