Prices have just gone up again for mobile and broadband — but that’s just the tip of the iceberg
3 things Ofcom failed to address with their new proposal
In December, Ofcom proposed to ban inflation-linked mid-contract price rises for broadband and mobile. These hikes — often priced at Consumer Prices Index (CPI) or Retail Prices Index (RPI) + 3.9% — happen within customers’ minimum-term contracts, so they have no way to avoid them. If this goes ahead, this month will be the last time consumers face these hikes — and they’ll no longer have to play a guessing game of what they’ll have to pay throughout their contracts when signing up.
This is a welcome step to tackle an unfair practice we’ve been calling out for a long time — but this is just the tip of the iceberg. Consumers face many difficulties that the proposed changes fail to address — risking leaving many worse off than before.
We’re highlighting 3 aspects of dysfunction that Ofcom’s proposal won’t address:
1. “Prices may vary” terms
Ofcom’s proposed rules state that, instead of increasing prices by inflation-linked measures, providers would need to set out in pounds and pence any increases during their minimum term.
But they’re not planning to close the door on discretionary price rises. Discretionary price rises — the use of “prices may vary” terms in a contract — allow providers to increase prices by however much they want, whenever they like. They used to be much more common before providers moved to using inflation-linked price rises, and there’s a serious risk that Ofcom’s ban will see a move back to providers using “prices may vary” terms.
Ofcom’s argument for banning inflation-linked price rises was that consumers couldn’t predict the rises in advance, but “prices may vary” terms are even worse for transparency and clarity. Ofcom argue that the ability to leave penalty-free when prices increase is sufficient protection.
But our research showed that many people don’t switch — even when faced with significant price hikes. After the biggest round of price hikes in over 30 years, only 10% of mobile and 8% of broadband customers who faced any increase switched — despite nearly half of mobile and a third of broadband customers being able to do so penalty-free. This isn’t new — just under 1 in 4 mobile and 1 in 3 broadband customers haven’t switched in over 2 years, with most not switching for at least 4 years, before the cost-of-living crisis began.
Switching isn’t easy for everyone — but some are more likely to struggle than others. Nearly 1 in 3 people with chronic mental health issues say they find the process of switching or renegotiating difficult — compared to only 19% of those with no mental health issues.
Ofcom’s recent review didn’t explore banning “prices may vary” terms — but this is something the regulator needs to look at now.
2. Out-of-contract customers
While a lot of attention has been on mid-contract price rises, annual price hikes affect all mobile and broadband customers. This includes loyal customers who stayed with the same provider and are now “out of contract”.
We’ve long drawn attention to loyalty penalties — when people get ripped off for sticking with the same provider beyond their minimum-term contracts. In the past we’ve focused on how bills can jump as people move out of contract, due to introductory offers ending. But even without this, the effect of annual price rises compounding each year can have a huge impact on what people are paying.
Take superfast broadband. If someone signed up to this in April 2020 then they would have paid on average £38 a month for this service. Since then, the cost of superfast broadband has stayed largely the same — in September 2023, it was roughly £42 a month on average. Prices for new customers have hardly risen at all despite high inflation in the past few years — but loyal customers have been hit with above-inflation hikes year on year. If that customer who signed up in April 2020 hadn’t switched then the effect of annual price rises of CPI+3.9% would mean they would be paying £54 a month for that package today. That’s a loyalty penalty of £140 a year.
The same is likely true for mobile customers too, as Ofcom data shows that various pay-monthly deals have consistently fallen since 2016.
Despite this, Ofcom failed to address issues facing these “out-of-contract” customers — who, according to our research, account for 1 in 3 broadband and nearly half of mobile customers.
3. Hidden deals and haggling
Switching isn’t the only barrier to decent deals. It’s widely known that the best deals are often found by phoning up and haggling with your provider. These “hidden” deals are only accessible to those comfortable and able to haggle. Our data suggests that some find this more challenging than others.
As well as finding switching tricky, over half of people with chronic mental health issues told us they weren’t confident phoning up and haggling to switch or renegotiate their contracts — compared to only 31% with no mental health conditions. Our data suggests that those with chronic mental health conditions who struggle to haggle are also more likely to be paying more than those without — adding up to £94 more for mobile and £55 more for broadband each year. Combined, this is nearly £150 extra per year.
When we asked people why they found switching and haggling hard, they said it was difficult, time-consuming, confusing and they were scared of being ripped off. For those who find both switching and haggling difficult, it’s hard to avoid spiralling loyalty penalties. The fact that people with protected characteristics might predictably find it harder to access the best deals raises serious questions for the industry and its regulator.
The telco market should ensure decent outcomes for everyone
Ofcom needs to think bigger and act faster. Its year-long review into mid-contract price rises was too narrow, left too many important questions unanswered and has allowed firms yet again to get away with huge price rises this year. Unreasonable expectations on switching and haggling mean that the telco market delivers poor outcomes for all but the most proactive and engaged consumers. It’s one thing to say that you have to be engaged to get the very best price but that doesn’t mean people who have less time, energy and capacity to research, compare and haggle their way into good deals should be ripped off.
Mobile and broadband are essential markets, they need to work for everyone. We’ve highlighted the problems. Let’s fix them fast.
