Ofcom proposal - prices need to be set out in pounds and pence

Detail_Merchant

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

Ofcom have provisionally concluded that inflation-linked mid-contract price rise terms can cause substantial amounts of consumer harm by complicating the process of shopping for a deal, limiting consumer engagement, and making competition less effective as a result.

They 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.

Final decision due in spring 2024, and they intend for the new rule to come into effect four months after the publication of their final decision.

JSmithy45AD

Certainly not a bad idea generally but how do they publish future price rises before knowing what inflation will be at? Surely banning mid-contract price rises would be better or is that an indication of how toothless OFCOM actually are?

MattMattMattUK

If people are incapable of understanding a percentage increase then one has to question if they have capacity to sign up to a legal contract. I have no issue with the concept of the mid-contract price rise, but I take issue with the RPI+3.9% that they all seem to use. For the duration of the contract it should be fixed at a CPI rise only, not RPI and not an additional percentage. 

iniltous

For all the indignation about mid term price increases , is it really the case that those that complain would  be happy to over pay initially at the beginning of the ‘contract’ to guarantee no increases during the minimum term ?
Unarguable fact , telecommunications are a business not a charity, business needs to make a profit otherwise they don’t remain in business, a business model that sets the price and guarantees no increases must be making a bigger margin at the beginning of the contract as ‘inflation’ will reduce any margin by the end ,  a small margin at the beginning indisputably means a loss at the end if inflation isn’t factored in , so the ‘guaranteed no increase’ business must be ‘overcharging’ at the start to mitigate the loss at the end , otherwise they won’t be around for very long .

Now there will be some that say , if two companies both charge £30 at the start , but only one guarantees no increase, the other could  have 2 price increases in the 24 month minimum term and that could conceivably raise the price by 15% or whatever , so £34.50 by the end ….arguably the no increase deal could be offered at £26-£27 with increases , but they chose to not to , by appealing to the ‘hard of understanding’ consumer that thinks that must be better, it may be from a budgeting perspective, but it’s not necessarily better value .

It’s understandable that some consumers are unsophisticated in this matter , the regulatory body shouldn’t also be unsophisticated though , if they ‘ban’ in term increases for some Red Top newspaper paper type BS headline ‘Ofcom crack down on overcharging ISP’s ‘ , all that will happen is everyone will pay more than necessary at the start of the deal .

gt94sss2

https://www.ispreview.co.uk/index.php/2023/12/ofcom-uk-ban-some-mid-contract-broadband-and-mobile-price-hikes.html

Detail_Merchant

JSmithy45AD said:

Certainly not a bad idea generally but how do they publish future price rises before knowing what inflation will be at?

I think the idea is that there won't be any inflation linked increases in future, but companies will still be able to offer deals with a cheaper initial period, or a slightly higher price for the second year, but it has to be clear.
e.g. £25/month for the months 1-12, then £27.50/month for months 13-24 of a two year contract.

MattMattMattUK said:

For the duration of the contract it should be fixed at a CPI rise only, not RPI and not an additional percentage. 

I thought that Ofcom might do that, max CPI increase, but even then it would mean that the customer doesn't know what price they will be paying over the contract as a whole. I guess Ofcom decided clarity was more important.

iniltous said:

a business model that sets the price and guarantees no increases must be making a bigger margin at the beginning of the contract as ‘inflation’ will reduce any margin by the end

I think suppliers, generally being large companies, are in better position to hedge for inflation, if they need to do that, rather than pass the inflation risk onto customers.
The new Ofcom rules don't mean no mid-contract price rise, just that the increase must be specified up front.
A supplier could just make their best guess at what level inflation will be, and build that into the contract.
Internally the supplier could hedge for inflation, or could just take the risk, and profit more if inflation was lower, or less, if inflation was higher, than the guess that increase was based on.
Or the supplier could offer a flat price for the whole contract, which, all other things being equal, would be a bit higher at the start, and a bit lower at the end, compare to a contract that has an increase.
Customers could then choose between suppliers that offer a level price or an increasing price, but with a certainty about the numbers.

Kim_13

This was reasonably foreseeable to Ofcom before they permitted it, and I suspect the pitfalls of a pounds and pence system will become clear to them also in due course. In the era of low inflation, the inflation linked rise was less than the £5 I seem to recall one or two providers adding per year, but it provided certainty for those that needed it. When Ofcom gives permission for a system of raising prices, all the providers will do it because they can. It took some time for them to do it with inflation linked rises, but they’ll just swap from one system to another rather than going to a “if we announce an increase you have X days to leave without penalty” (which I favour, as providers imposing fair increases won’t lose customers while those who cannot afford it won’t become bad debts / lose sleep trying to work out where the money will come from to pay it.) Providers generally don’t care if the customer’s circumstances change for the worse, so why should the customer care if the provider’s costs increase during the contract period? 

Ofcom simply needed to regulate the increases (must be based on the price the customer pays, as that’s what matters to them, not an arbitrary figure the package supposedly costs; CPI only.) That would mean that pensioners would be protected, as they get that on the State Pension. They might still be worse off thanks to food, council tax and utilities not being limited to the same rise, but it won’t be due to the ridiculous formulas used to set rises at the moment. Instead we have this, which’ll take too long to prevent another rise of a size that wasn’t envisaged when the current system was given the green light.

Banning one format entirely reduces customer choice. If anything, they should have been looking into the cartel like way they all arrived at +3.9% (+3.7% for those trying to pretend they were being generous) and that they would ‘only’ apply +X% if RPI was negative. How kind…

wacko911

MattMattMattUK said:

If people are incapable of understanding a percentage increase then one has to question if they have capacity to sign up to a legal contract. I have no issue with the concept of the mid-contract price rise, but I take issue with the RPI+3.9% that they all seem to use. For the duration of the contract it should be fixed at a CPI rise only, not RPI and not an additional percentage. 

I pay £25 a month for broadband. Rate increase of 10% announced. How much is my new rate?

£27.50? Wrong it's £30.00!

Why? The 10% is based on the pre-discounted amount. My BB on the montly bill is £50 a month with £25 a month discount,  essentially I've been hit with a 20% increase. Do you think that's obvious when you are signing up to a 2 year contract over the phone?

I think not. That information is buried deep in the T&C's that have more words than some books in the bible. 

Money_Grabber13579

MattMattMattUK said:

If people are incapable of understanding a percentage increase then one has to question if they have capacity to sign up to a legal contract. I have no issue with the concept of the mid-contract price rise, but I take issue with the RPI+3.9% that they all seem to use. For the duration of the contract it should be fixed at a CPI rise only, not RPI and not an additional percentage. 

I’m not sure anyone is suggesting that anyone is incapable of understanding a percentage increase? It’s the fact that they don’t know what it means in pounds and pence that is the issue. They might start off paying £30 a month and end up paying £31 a month. Or in the current environment, they could end up paying £38 a month. Or if inflation went really high, they could end up paying £50 a month. For many people, an increase of £1 a month would be affordable, but £20 would not. Especially as there is no guarantee that wages would increase by the same amount and there is no way to exit once they’ve signed up. Essentially is it big business putting all of the risk on the consumer.

The issue I have is that the in contract price rises don’t reflect the additional costs. I’m currently paying £40 a month. I estimate it will be closer to £45 a month by the time I’m finished. I started off just over £35 a month. When I come to recontract, I fully expect that I will get a price for an equivalent package of between £35-40 a month. So the price increase is just an excuse for more profit rather than reflecting genuine cost increases. They really need to go a step further and prevent price increases in a contract at all or allow penalty free escape clauses if they do. When leasing a car, there are no built in price increases there - if they can do it, so can communication providers.

iniltous

This whole argument is based on the notion that ISP make a huge margin on suppling service, they don’t , the reality is probably a £30 a month contract delivers a small margin to the ISP , but if they are banned from any increase mid term that doesn’t specifically mention the increase in cost in ££’s ( as opposed to being based on the Government’s inflation figure ) then either the £30 deal becomes a £40 deal and the price maintained for the duration, low inflation the ISP makes a bigger margin , high inflation the margin may reduce but the figure set so it’s not going to disappear , they err on the cautious side when setting the initial price , or the deal is £35 in months 1-12 , and £40 months 13-24, the increase in the second year based on what , a guess on what they think inflation will be , again , why would they needlessly fix this at the low end of expectation.

At least at the moment increases are based on a factual inflation figure , the forthcoming increases will be based on nothing more than  a guess , and guessing wrong could be catastrophic for the business ( all of them ) , consequently they all  will err on the side of caution, and will assume the worst ( high inflation ) and set their prices accordingly, if inflation is low they make more profit, a win , win for them  , difficult to see where the win is for the consumer, there may be some that will take a ‘risk’ and set their price aggressively but if times get tough they will simply remove other costs , like customer service and  backhaul .

It really is a case of the regulator looking for a ‘easy win’ , but it’s nothing more than Red Top newspaper mentality, no doubt this will prove the adage ‘be careful what you wish for’ 

iniltous

And your point is what , you do realise Virgin put their prices up annually on exactly the same basis  ( CPI +3.9%) so what’s that got to do with Openreach  ?
Ofcom are appalling, but even they realise that if you want the country to have FTTP they cannot make Openreach a non profit organisation, otherwise the shareholders would just put their money elsewhere