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U.K. Telecoms Watchdog Wants Consumers To Be Able To Exit Contracts Without Paying A Penalty If Prices Go Up Mid-Term

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U.K. telecoms regulator Ofcom is proposing to change the rules on fixed contracts for mobile, landline and broadband services to prevent providers forcing price hikes on existing customers. Ofcom’s current rules are open to interpretation — since comms providers only have to allow consumers to exit a contract without penalty when a contractual term change is likely to be of ‘material detriment’, leaving room for different interpretations of what constitutes ‘material detriment’.

Ofcom wants to clarify and simplify the rules, by proposing to allow consumers to exit a contract without penalty if their provider introduces any price increase during the term of the contract. The regulator also wants providers to be “clear and upfront” about the potential for price increases during a contract, as well as keeping them informed of their right to cancel the contract in the event of any price increase.

The proposed new rules follow a review conducted by Ofcom of the fairness of certain contract terms. Ofcom said it examined 1,644 consumer complaints about changes to terms and conditions during the period September 2011 to May 2012, adding that its analysis shows many consumers complained they were not made aware of the potential for price rises in what they believed were fixed contracts.

All the U.K.’s major mobile carriers have raised prices in recent months — with O2 the latest to announce mid-contract price rises last month, following similar hikes by Vodafone, Orange, T-Mobile and Three in the past 14 months, according to consumer advice publication Which?.

Ofcom’s preferred proposal is to modify its General Condition 9.6 to allow consumers to withdraw from a contract without penalty if providers increase prices during the contract term, but the regulator is also consulting on three other possible approaches to tackle price rises in fixed term contracts — including looking at:

  •  whether consumer harm could be addressed solely by tackling the current lack of transparency around the potential for price increases. This is considered alongside the possible need for guidance on how providers should interpret and apply both Ofcom rules and general consumer protection laws when making price increases
  • whether consumers should have to actively ‘opt-in’ to any variable price contract

Ofcom is also considering the implications of maintaining the status quo but added that its current view is that these three options are unlikely to be sufficient to address the consumer harm it has identified.

The regulator also reveals it has considered a complete ban on price rises in fixed contracts but says it does not think this would be consistent with the European legal framework, so the option to ban mid-term contract rises has not been included in the consultation.

The consultation closes on March 14, 2013 and Ofcom expects to publish a decision in June 2013.

Commenting on Ofcom’s proposal, Vodafone warned that the proposed rule change risks causing consumer confusion and could also potentially increase the cost of mobile phone contracts. The carrier provided the following statement:

We support Ofcom’s desire to give consumers reassurance about the prices that they will pay during their contract, but the regulator’s proposals risk generating significant confusion and potentially increasing the cost of getting a mobile phone contract for millions of people. As such they could damage what Ofcom’s own research shows is the best value mobile phone market for consumers anywhere in Europe.

 

We believe there is work to be done to ensure that customers understand the need for long-term contracts and to ensure they are protected during that time, but Ofcom first needs to understand the difference between the prices that are set by mobile phone companies and those which are not.

 

We simply do not control many of the charges faced by consumers. They are set by third parties and mobile phone companies have to pass those costs on or they will be subsidising other companies. Prices set by third parties such as BT, include those for directory enquiry services, premium rate and 08 numbers. Yet Ofcom appears resolved to introduce measures that would effectively prevent any rises in these prices being recouped while customers are still in contract.

 

We cannot be held accountable should BT, for example, put up the price of calls to premium rate, 08 or its 118500 numbers. Nor can we be expected to swallow that sort of price rise ourselves.

 

Under Ofcom’s proposals new customers, meanwhile, could find themselves paying different prices for different services depending on which third party has recently increased its prices. At a time when both the regulator and consumer groups are calling for prices to be simpler to understand, Ofcom’s proposals could take the industry back to a time when consumers were faced with a bewildering array of prices for calling different numbers.

 

Ofcom itself admits that if its proposals are carried out, they could result in the up-front cost of using a mobile phone actually increasing as mobile phone operators will have to try and second guess what price increases third parties will attempt to introduce.

 

As this is the start of a consultation on the issue we will of course be engaging with Ofcom to see how they intend to prevent price gouging by third parties, widespread consumer confusion about prices and increases in the up-front cost of getting a phone.

 

We can then move to a solution that rightly protects consumers by giving them a clear understanding of price and contract commitments which we are sure both the regulator and consumer groups want to see happen.