Watchdog launches probe after 1,600 complaints that Vodafone, Orange, Three and T-Mobile raised cost of so called fixed-price contracts
Ofcom is to investigate the way broadband, landline and mobile phone companies increase the price of services when customers are under contract.
Vodafone, Orange, T-Mobile and Three have all raised prices for people on fixed-term contracts this year.
With the regulator receiving more than 1,600 complaints between September 2011 and May this year, it said a review launched earlier this year had identified a number of issues that have "the potential for consumer harm".
Many consumers sign up to fixed-term contracts in the belief that costs will not increase but the small print contains clause that enable providers to hike up the monthly payment.
Ofcom said its existing regulations state that "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".
The controversy focuses on the definition of ‘detriment'.
Ofcom's consumer group director Claudio Pollack said the regulator understood the "frustration" consumers felt when they were faced with price rises.
"Having considered the large number of consumer complaints, we will soon consult on ways to address consumer concerns and ensure they are being treated fairly in this area", he added.
The consultation will examine if terms that allow companies to vary the prices in fixed-term contracts are "appropriate". It expects to publish the findings by the end of the year.
Broadband Choices, a price comparision site welcomed the consultation.
Dominic Baliszewski, of Broadband Choices, told us: "Ofcom's investigation is overdue. There is a lot of confusion in the market over what ‘fixed contract' really means and consumers are, unsurprisingly, shocked when they discover their telecoms provider is free to raise prices whilst they are powerless to switch to another deal until their contract runs out.
"The possibility of these unexpected rises needs to be explicitly flagged to customers at the point of sale, or banned altogether to empower consumers to make informed decisions about their telecoms needs."
However Vodafone warned that any changes must not hamper investments made to the networks by providers.
A Vodafone representative said: "We have noted Ofcom's statement and will work with them in the forthcoming consultation. The UK mobile market is already the most competitive in Europe with the return on investment made by networks in the UK lower than across Western Europe.
"It is important that any changes introduced by the regulator do not prevent any company from addressing rising day to day costs or restrict their ability to invest the very substantial amounts of money that are needed to create the next generation networks that this country needs."
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