Broadband customers who are out of contract are set to benefit from a package of pricing changes and commitments from their providers, following a review by UK comms regulator Ofcom.
According to Ofcom, the broadband market offers customers a wide range of choice, with different deals on offer to suit different needs, but it is concerned that many customers – particularly some who are facing challenges – are not benefiting from the discounts available.
Accordingly it has been reviewing the pricing practices of broadband companies and taking action to protect customers from high out-of-contract prices.
In September 2019, Ofcom secured commitments from BT, TalkTalk and Virgin Media to reduce prices automatically for vulnerable customers who are out of contract. It has now secured commitments from EE, Plusnet and Sky to do the same. EE and Plusnet have also now joined BT, Sky and TalkTalk in deciding to give all existing customers access to new customer prices.
In total, Ofcom estimates that the pricing changes made by providers since it opened its review could ultimately benefit all out-of-contract customers by over £270 million per year. This would address more than half of the nearly £500 million difference in what out-of-contract customers pay compared to average prices.
Following the review, all major providers have now offered protections for their vulnerable customers. Ofcom estimates this, and other pricing changes, could ultimately benefit around one million vulnerable out-of-contract customers by an average of around £70 each per year.
“We’ve already made it easier for people to get a discount and save money,” noted Jane Rumble, Ofcom’s Director of Consumer Policy. “But we’re concerned some customers who find it harder to seek better deals are missing out.”
“So we’re pleased providers have done the right thing by cutting vulnerable customers’ bills. We’re now calling on them to go further and take extra steps to identify and support customers who might be vulnerable.”
These new measures to help vulnerable customers are part of Ofcom’s wider review of broadband pricing, in which it has analysed prices paid by millions of customers.
Overall, strong competition means most customers are getting good value for money – with companies offering discounts to attract new customers. This type of discounting is an important feature of any competitive market and naturally leads to people paying different prices for the same service – depending on when they signed up to their deal.
When a broadband customer’s initial discount comes to an end, this usually leads to a default price rise. Customers can avoid paying higher prices by negotiating a new deal or switching provider, but those who don’t are likely to be paying more than they need to. This is often referred to as the ‘loyalty penalty’.
Ofcom has found that around 40 per cent of broadband customers (8.7 million) are out of contract. On average, these customers pay around £4.70 per month more than their provider’s average price for their service. But there are significant differences between the additional amounts that different companies’ out-of-contract customers pay, and the proportions of customers who are out of contract:
The proportion of customers who are out-of-contract varies from provider to provider, and so does the amount more than the provider average they pay each month.
Ofcom rules introduced in February 2020 mean that customers must be warned by their provider when their current contract is ending, and what they could save by signing up to a new deal. This gives people the information they need to take action and avoid an automatic price rise at the end of their initial contract period.
Ofcom expects this to reduce the number of customers who are out of contract and paying more than they need to. It is closely monitoring the impact of these new alerts and will publish its findings next year.
Ofcom welcomes the swift action providers have taken to protect customers who are struggling to pay as a result of Covid-19. However, it believes there is room for providers to do more to protect their vulnerable customers from high out-of-contract prices more generally. It has set out three main steps it wants providers to take:
Ofcom will continue to monitor pricing practices in the broadband market and step in to protect customers if necessary.
Ed Dodman, director of regulatory affairs at telecoms complaints handling body Ombudsman Services, welcomed the announcement. “It’s good to see Ofcom and providers taking further action to help broadband customers, particularly those who are in vulnerable circumstances,” he said. “We know from the complaints we handle that consumers want pricing that’s fair, open and transparent across the board, so they can make informed choices. Today’s announcement marks a positive step towards that and will help to build consumer trust in the broadband market.”