Are escalating Broadband Bills a Fair Contract?

IamNotAllowedToUseMyName

Had a response from the CMA they are reviewing the issues I've raised, which is better than an outright rejection.

Dear Sir,

 

Report issues in a market sector: Broadband and Comms Network

 

Having been recently advised of Virgin Media's price increases, they have adopted what I have come to understand is a pricing increase system devised by OFCOM to encourage broadband rollout. The essence is that companies involved in phone and broadband have introduced apparently fixed price contracts at the point of sale which include a price escalation clause in the small print. Previously companies had price increases in contracts but allowed for cancellation. These recent contracts have a form of RPI + x% with no cancellation being permitted as the increase has been pre-announced. All the companies appear to be using RPI or CPI + 3.9% set at around April each year which is taken from the maximum allowed by OFCOM. OFCOM set this system up a couple of years ago, when inflation was low and the current levels were not foreseen.

 

This has a few peculiarities, such they have abandoned a "no increase for the first year" approach so you can sign up to a deal you believed was a set price in December and get an increase the following April based on the small print that is not highlighted in advertising in the same way as the headline price (which I believe is against ASA regulations).

 

My main concern is that OFCOM, in trying to encourage broadband regulation, have inadvertently abandoned price competition in a not dissimilar way to how the energy market price competition vanished under supply pressures.

 

We are seeing a complex monopoly:every major supplier, including OpenReach, therefore impacting smaller suppliers, have imposed an RPI + 3.9% increase. 

 

The new contracts lean towards unfairness, and although pricing might be exempted from Unfair Contracts, there are clearly elements that push the boundaries:

 

1) The price escalation clause does not give a foreseeable price increase, so personal circumstances might mean that inflation + 3.9% is unaffordable (e.g. if you are in the health service and have not been an inflation-matching increase). Being unable to break the contract means that someone cannot downgrade to a more affordable service without incurring penalty charges against a higher priced contract. Just because the contract allows for RPI + fixed amount, the consumer cannot judge the impact of inflation, and how it might relate to their circumstances (e.g. wage increase).

 

2) Universally, the suppliers can charge RPI in excess of zero without limit, but if RPI should fall below zero, they allow themselves a minimum increase of 3.9%. Now, although negative inflation is hypothetical at the moment, it is clearly an unfair contract that forces the consumer to always provide an increase to the supplier. Effectively, suppliers are hedged against inflation and are using the consumer to fund network investment, while consumers are being denied the ability to hedge their commitment to communications services.

 

There is another unrelated dysfunction in this approach. Where is this broadband rollout being applied. At my address, I have VirginMedia fibre, maintained to their latest specification. I also have access to BT fibre, not the legacy network. Last month, CityFibre installed a new fibre to the house network, to go live in a couple of months time. CityFibre's main users appear to be TalkTalk and Vodafone who are currently supplying fibre broadband via OpenReach. So I have access to 3 different fibre networks. So although we are seeing investment in cable, it is not providing better access or improvement for Britain if all that is happening is that the rollout is still concentrating on existing easy access urban areas and more affluent areas that have multiple high quality suppliers already. So effectively we have 50% more network choice increase and 0% supplier increase and effectively the broadband capacity will be operating vastly under capacity with a maximum of 33% usage of the network potential.

 

I don't believe that I need to provide detailed evidence of this. The matter was recently discussed at the DCMS Committee on the 14th March, but I can provide sample terms from Virgin, Vodafone and OpenReach based on my contracts and that which is available on Internet searches. I have not contacted OFCOM, in part because I saw the embarrassing performance of the Head of OFCOM at the DCMS committee. 

 

The RPI + x% is essentially anti-competitive creating a cartel-like effect where there is an inbuilt inflationary effect which is against consumer interests. The lack of cancellation is unfair given that consumers have not the tools to understand the impact of inflation going forward and have no means of insulating themselves from the impact except seeking alternative or reduced supply, and the minimum increase regardless is prima face an unfair term (so arguably makes all these contracts unenforceable).

 

I believe the CMA should review the impact of the OFCOM inspired pricing structures and see whether:

 

a) The pricing is anti-competitive.

b) The lack of cancellation clause is unfair.

c) The rollout of infrastructure is being properly directed to benefit the nation as a whole, rather than being a consumer subsidised benefit to the network providers. If the network is not providing the benefits of a better service across all communities, then the impact of removing consumer market protection and benefit is not outweighed by the supposed benefit of improved network.

 

Yours sincerely

 

 

Grumpy_chap

As much as I find the "+3.9%" part of the increase an outrage, this affected me for my mobile phone and thus forced me to shop around.

My old contract £9 per month with 50 pence discount voucher each month, unlimited minutes / text, 10GB data.

New contract £10 per month with £1 discount each month, unlimited minutes / text, 12 GB data, price fixed for 2 years from now.

It means my price has increased by 50 pence per month, I get a 20% higher data allowance and 2-year price certainty.  It is several years since I took out the old contract.

There were slightly cheaper offers on comparison sites but I choose to stick with the service and signal I know.

This seems to prove that there is a competitive market. 
It also means that those who are "inactive" are the ones that end up suffering the most - quite often those that are "inactive" are the most vulnerable.
This should probably be regulated somehow in a similar way to how they put rules in for car insurance to even the "inactive" with the new customer.

FWIW, my Virgin Media contract is out of contract and when I looked, the service is set to continue at the same price as I had for the past couple of years, so that seems good.

Alizantil

hopefully ofcom will ban hikes mid   'contract'

or at least give customers the option to bail out then , without penalty

Scot_39

IanMSpencer said:

Virgin Media, in common with other phone and broadband suppliers have changed their contract so that as of April, we are to be locked into an escalating price contract of RPI + 3.9% per annum, with a minimum price increase per annum of 3.9%

While escalating prices have been a feature of supposed fixed price contracts for a while, it strikes me that VM are trying to create conditions where they can put in annual price hikes while taking away the right to cancel the contract without penalty which they currently have to give under their existing contract.

My question is: is forcing a consumer to agree to an escalating price clause a fair contract?

There is a further issue about VMs unfair practices in that they will generate a new contract start date just about every time you interact with them.

Fortunately I probably have an escape with a 3rd(!) cable supplier laying cables past my property so have a solid negotiating position when that is launched, but it strikes me that an escalating price contract is both an unfair contract, and I suspect that there is a complex monopoly in play as I suspect that all phone and broadband suppliers are adopting these practices.

https://www.gov.uk/unfair-terms-in-sales-contracts/unfair-consumer-contracts#:~:text=If a customer complains,using unfair terms or notices.

Your contract terms might also be unfair if they weigh the contract significantly in your favour, eg:

• by providing for excessive cancellation charges and automatic loss of all upfront payments

• by creating unbalanced rights, eg being able to cancel a contract at any time, but requiring the customer to give 3 months’ notice

• by allowing you to increase the agreed price at a later date

Your contract won’t be unfair just because it sets a price that’s higher than another business charges.

(Edited to correct % additional increase)

The CPI or RPI + 3.9% have been in other contracts for over a year.

So mobile contracts, BT home phone and as you say broadband etc.

The only reason people are screaming now - is that the CPI/RPI base has increased from c1% to 10-15%+ of late.

And all of that was with the blessing of Ofcom.

To fund the role out of 5G, to fund the role out of FTTP - for when the analogue phone system switched off in 2025 etc.

And you might even want to look at the CW union site - and the pay rises awarded by BT this year - to show it's not simply money going in CEO bonuses or shareholder dividends.

The govt stood in to cap student loan rates last year (which were also inflation tied for latest loans) - there is no reason it could not (should not more arguable) be doing the same with these RPI/CPI+ deals.

Again suspect the push is likely to be on social tariffs - for inclusion of poorest  - rather than protecting the wealthier in society.

But given the recent chaos (3 PMs in c3 months) - and other pressing matters on bigger bills like energy - perhaps not their biggest priority.

IamNotAllowedToUseMyName

I note that Which are after Virgin after noting another clause in their contract which gives themselves the right to increase charges at any time.

I'm not convinced it is in OFCOM's remit as it is a basic unfair contract.

https://www.theguardian.com/media/2023/aug/24/virgin-media-broadband-contract-ofcom-urged-investigate-consumer-group-which?CMP=Share_AndroidApp_Other

saajan_12

If you're going to have any mid contract risks, then linking to inflation is IMO the fairest way. Its supposed to represent an overall deal in real terms, that both sides have to stick to. Sometimes, inflation is high, but that doens't make it inherently unfair. Compared to say a fixed % increase which applies even when their costs are getting cheaper. What is unfair though, is 

1. floored inflation @ 0%. That means say if there was a blip when inflation went +10% and back -10%, then really the market has stayed flat over the long term. However your price would go +10% and then stay flat in the second year. If they want it to link to inflation, that should be for the ups and the downs. Naturally, there will be more ups. 

2. extra % over inflation. Those extra amounts compound, and can take you way in excess of what the actual intention was ie to track inflation. In the second year, you're paying the increase on the extra 3.9% as well, and so on. 

3. Not clearly advertising price including increases. With T&Cs getting longer and longer, many industries and regulators are now considering it disingenuous and unfair to materially change the headline prices etc in the fine print. If a £100 for 12 months service will increase by 15% in 3 months, then really the average cost is £115/month. If the increase is RPI dependent, then can approximate it on something reasonable eg the current inflation level. Either way, that should be advertised in any place where the headline price is mentioned to help people compare. 

4. Can't force the original price. In the old contracts that DIDNT specify a price increase in the T&Cs, customers could leave penalty free, but often competitors would also be expensive. They had a valid, binding contract for the original  price, yet couldn't continue getting the service for the original price for the rest of the fixed term. 

IamNotAllowedToUseMyName

Bit slow, but it seems OFCOM are grasping the nettle.

https://www.bbc.co.uk/news/business-67680327

MattMattMattUK

IanMSpencer said:

Bit slow, but it seems OFCOM are grasping the nettle.

https://www.bbc.co.uk/news/business-67680327

Not really, they are not banning RPI+ increases, they are just saying that the provider has to lay them out in a way that an eight year old can understand, which is largely a pointless exercise. 

the_lunatic_is_in_my_head

MattMattMattUK said:

IanMSpencer said:

Bit slow, but it seems OFCOM are grasping the nettle.

https://www.bbc.co.uk/news/business-67680327

Not really, they are not banning RPI+ increases, they are just saying that the provider has to lay them out in a way that an eight year old can understand, which is largely a pointless exercise. 

From the article:

Phone, TV and broadband customers must be told about any mid-contract price rises at the point of sale and "in pounds and pence" under new plans.

How do they link to an unknown RPI and also give someone a pounds and pence figure 11 months, for example, before a price increase? Presumably they'll have to change something, even if that means using the RPI % at the point the contract is taken out. 

Personally I'm not a fan of these increases, main reason is for the service we are on the price for a new customer is £40 a month and has been for years (although that may not be typical for everyone). 

MattMattMattUK

the_lunatic_is_in_my_head said:

MattMattMattUK said:

IanMSpencer said:

Bit slow, but it seems OFCOM are grasping the nettle.

https://www.bbc.co.uk/news/business-67680327

Not really, they are not banning RPI+ increases, they are just saying that the provider has to lay them out in a way that an eight year old can understand, which is largely a pointless exercise. 

From the article:

Phone, TV and broadband customers must be told about any mid-contract price rises at the point of sale and "in pounds and pence" under new plans.

How do they link to an unknown RPI and also give someone a pounds and pence figure 11 months, for example, before a price increase? Presumably they'll have to change something, even if that means using the RPI % at the point the contract is taken out. 

Personally I'm not a fan of these increases, main reason is for the service we are on the price for a new customer is £40 a month and has been for years (although that may not be typical for everyone). 

From the initial reports it was all very woolly, they used phrases such as "example rises", which seemed to be indicating that it would have some other cost mechanism behind it and the monetary cost rise would be displayed as an example only. Now the Ofcom article has been published it appears other parts are updated and a lot clearer (paragraph below). I am wondering if it would just be easier to ban mid-contract price rises outright though. 

To tackle this problem, we propose to introduce a new rule requiring that any price written into a customer’s contract would need to be set out in pounds and pence, prominently and transparently, at the point of sale. That includes being clear about when any changes to prices will occur.

This would prevent providers from including inflation-linked, or percentage-based, price rise terms in all new contracts.

https://www.ofcom.org.uk/news-centre/2023/ban-on-inflation-linked-mid-contract-price-rise