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Protection for consumers against mid-contract price rises

October 23, 2013

Consumers and small businesses1 should be allowed to exit their landline, broadband or mobile contract without penalty if their provider increases the cost of their monthly deal, Ofcom announced today.

Ofcom is today telling providers how to interpret and apply current telecoms sector rules2 in relation to price increases during fixed-term contracts. Ofcom is also confirming the cancellation rights it expects providers to give consumers following price increases.

This Guidance sets out that:

  • Ofcom is likely to regard any increase3 to the recurring monthly subscription charge4 in a fixed-term contract as ‘materially detrimental’ to consumers;
  • providers should therefore give consumers at least 30 days’ notice of any such price rise and allow them to exit their contract without penalty; and
  • any changes to contract terms, pricing or otherwise, must be communicated clearly and transparently to consumers.

A fairer deal

Ofcom’s decision follows a consultation on how to give consumers a fairer deal in relation to price increases during fixed-term contracts.

The new Guidance comes into effect three months from today. It will apply to any new landline, broadband, and mobile contracts (including in some cases bundled contracts) entered into after this date.

Claudio Pollack, Ofcom’s Consumer Group Director said: “Ofcom is today making clear that consumers entering into fixed-term telecoms contracts must get a fairer deal. We think the sector rules were operating unfairly in the provider’s favour, with consumers having little choice but to accept price increases or pay to exit their contract.

“We’re making it clear that any increase to the monthly subscription price should trigger a consumer’s right to leave their contract – without penalty.”

Ofcom’s decision in detail

All communications providers must follow a set of Ofcom rules called ‘General Conditions’. General Condition 9.6 requires that communications providers give consumers at least one month’s notice of any changes to a contract that are likely to be of ‘material detriment’ and allow them to exit that contract without penalty.

Consumers have faced being treated inconsistently, with some allowed to leave their contract without penalty following price increases, while others were not.

The Guidance addresses this uncertainty and seeks to put consumers in a fairer position. It also reflects European rules5 and acknowledges the significance of core subscription prices and price rises to telecoms consumers.

It makes clear that Ofcom is likely to consider any increase to the monthly subscription charge to be materially detrimental to a consumer. For such price increases, the Guidance states that a consumer’s right to exit their contract without penalty should be automatically triggered.

Other charges

The Guidance does not apply to any non-price changes to contracts. Ofcom has, however, considered the possibility of communications providers responding to Ofcom’s decision by reducing the call and/or text and/or data allowance included in a customer’s monthly subscription price.

Ofcom would regard such action as a price increase – as consumers would be getting less for the same money. The Guidance would still apply in those circumstances.

The Guidance is also not applicable to price increases outside of the core monthly subscription price.6 For mobile customers, for example, these typically include charges for exceeding a monthly inclusive allowance, premium rate services, non-geographic calls and directory enquiries.

Guidelines on transparency

Ofcom has also found that some consumers were caught unawares by mid-contract price rises and were not sufficiently warned this could happen when they signed up to their deal. In some circumstances, consumers may also have not been made adequately aware of their right to exit their contract, or of the amount of time they had to exercise this right.

To address this problem, the Guidance explains how providers should communicate any contract modifications, pricing or otherwise, to consumers.

These measures include ensuring that letters or emails about contract changes should be clearly marked as such, either on the front of the envelope or in the subject header.  Notifications of price increases must also be clear and easy to understand and make customers aware of the nature and likely impact of the contract change.

Where relevant, information about the customer’s right to exit the contract should be made clear upfront – for example, on the front page of a letter or in the main email message, rather than via a link. The period within which consumers can cancel their contract (Ofcom’s guidance sets out that providers should allow consumers 30 days) should also be made clear.

Today’s statement is available online.

ENDS

NOTES FOR EDITORS

1. Small businesses are defined as those with fewer than 10 employees.

2. Under General Condition 9.6, communications providers are required to give customers a minimum of one month’s notice of any change to their contractual terms that is likely to be of ‘material detriment’ and customers must be able to withdraw from their contract penalty-free following such notice.

3. Limited exceptions include passing on increases in VAT and any other taxation charge or regulatory levy, imposed by changes in mandatory provisions laid down by Government or regulatory authorities, payment of which is compulsory.

4. The Guidance will apply to any increases to the recurring subscription charge. The recurring subscription charge usually applies monthly. Ofcom regards this as the recurring charge that the customer is contractually obliged to pay for a core package of price inclusive services (such as number of call minutes to certain numbers, text messages and data allowances for mobile customers) for a pre-determined period of time (of no more than two years for consumers).

5. Many of the rules that apply to the telecoms sector are derived from the common regulatory framework set out in European Directives. Those relating to changes to contract terms are in Article 20 of the Universal Services Directive 2002/22/EC.

6. These are the prices for services that fall outside of the relevant core (usually monthly) subscription, and which are billed only when such services are used by the customer.

7. Although the Guidance Ofcom is issuing today does not apply to non-subscription prices, any increases to these prices will still remain subject to Ofcom’s General Conditions (including General Condition 9.6) and the relevant consumer legislation. Ofcom will monitor complaints about any increases to non-subscription charges and may review its position if new evidence of consumer harm comes to light.

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