Ofcom investigating inflation-linked mid-contract price rises for broadband

The regulator said it was “concerned” about the degree of uncertainty consumers face about future price rises specified in contracts on the basis of inflation.

The unpredictability of inflation rates means it can be difficult to know, often months in advance, what an inflation-linked price rise will equate to in pounds and pence when consumers enter a contract.

The review comes in the wake of record high inflation, with the cost of living increasing across the UK since early 2021.

The annual rate of inflation reached 11.1 per cent in October 2022, a 41-year high, before easing to 10.7 per cent in November and 10.5 per cent in December 2022. High inflation affects the affordability of goods and services for households.

In preliminary research, Ofcom found that around a third of mobile and broadband customers do not know whether their provider can increase their price. Among those who do know their provider can increase their price, around half do not know how this would be calculated.

General consumer law does not prevent companies from increasing their prices during the contract period, provided they do so fairly.

Many, but not all, telecoms firms choose to do this. Some give customers 30 days’ notice and the right to exit penalty-free. Others specify price rises in customers’ contracts from the start.

Ofcom has strict rules in place that mean providers who specify price rises in contracts must make this clear before customers sign up. In December, it launched a separate enforcement programme into whether companies have been sticking to this.

“We need to take a closer look at these issues to consider whether we need to intervene to ensure customers have greater certainty and clarity, from the outset, about the prices they will pay over the duration of their contract,” Ofcom said.

The findings of the reviews are expected to be published later in the year. Millions of customers are currently either out of contract or with a provider that lets them walk away if prices go up, although many are also in longer-term contracts.

Cristina Luna-Esteban, Ofcom’s director of telecoms consumer protection, said: “Customers need certainty and clarity about what they will pay over the course of their contract, but inflation-linked price rises can be unclear and unpredictable, so we’re concerned that providers are making it difficult for customers to know what to expect.”

Citizens Advice director of policy Matthew Upton said: “Ofcom is right to shine a light on this practice, but consumers need rapid action before inflation-busting price hikes kick in this April.

“As we all pull together in a cost-of-living crisis, companies should do everything in their power to help consumers. That means making pricing crystal clear.

“Worryingly, we found one in three people currently on contracts with rises linked to CPI have never heard of it.

“What consumers really need is for Ofcom and the Government to ban mid-contract price rises.”