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

HaroldWhistler

Detail_Merchant said:

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.

Exactly this.

I agree with you that either the contract should always be fixed prices or there be clear pricing stated in large font up front at the point of sale. Some companies like Zen and Cuckoo do fixed flat prices already. A contract means the business gets certainty over a revenue stream and can plan accordingly, whilst the customer gets the certainty of a cost and a service. 

This has taken OfCom far far far too long. Including the other headline about only allowing Full Fibre to be marketed as "Fibre broadband" apparently. 

However, it is a start. If the utility provider has to actually state clearly the cost upfront at the point of sale, it will probably end the "CPI + 3.9%" because as someone mentioned, the CPI figure will be unknown at the point of sale. So the provider would have to just state a fixed price increase from a particular month in the contract term.

Market competition would theoretically then result in providers trying to outdo each other by offering lower price increases than a competitor in order to attract customers (and avoid losing business) which ultimately should (in theory) just lead to a fixed price like Cuckoo and Zen in the end (who already do a flat price to begin with!) 

Alternatively, they might try and offer a 12 month contract where the price goes up after month 11 and continues at that increased price after the contract ends. Whereby you can re-contract at the new price, or switch. 

Now if a Regulator would just state that the price of a Railway ticket could not increase unless accompanied by a new (bullet) train...