Ofcom to examine fairness of price rises in fixed-term contracts

Ofcom has warned that price rises made to fixed-term broadband, mobile and landline contracts have "the potential for consumer harm".

The communications regulator has said such rises in fixed contracts take many people by surprise and it had it had identified a number of issues where it wants more protection for consumers put in place.

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It has now opened a consultation and among the proposals it wants is a promise from landline, broadband and mobile services providers that customers can cancel a contract, without penalty, if they think a price rise unacceptable.

Claudio Pollack, Ofcom's Consumer Group Director, said: "Many consumers have complained to us that they are not made aware of the potential for price rises in what they believe to be fixed contracts.

"Ofcom is consulting on rules that we propose would give consumers a fair deal in relation to mid-contract price rises."

The issue of price rises in fixed term contracts has been under investigation by Ofcom since 2011. In October last year the regulator said that it had received more than 1,600 complaints between September 2011 and May 2012 from customers angry about price rises.

The consultation will consider whether current price variation terms in fixed-term contracts are appropriate. Related issues including the transparency of price variation terms, and the information provided to consumers at the point of sale will also be reviewed.

Initial proposals that Ofcom has put forward is communications providers to allow customers to exit a contract without penalty if any price increase is introduced during the term of the contract."

Currently Ofcom said that customers "have little choice but to accept the increase or pay a penalty to exit the contract. Under the current rules, the exception is where a provider agrees that the price increase would be likely to cause ‘material detriment."

It also wants providers to be "clear and upfront about the potential for price increases and of the consumer's right to cancel the contract in the event of any price increase".

Ofcom said that this would allow providers to increase prices but give consumers the freedom to leave a contract if they did not accept the rise. A further option in the consultation will look at whether consumers should have to actively ‘opt-in' to any variable price contract.

Vodafone said while "there is work to be done to ensure that customers understand the need for long-term contracts and to ensure they are protected during that time", it said the proposals could backfire on consumers.

Putting the blame for many price rises on third party companies such as BT it said: "...the regulator's proposals risk generating significant confusion and potentially increasing the cost of getting a mobile phone contract for millions of people.

"We cannot be held accountable should BT, for example, put up the price of calls to premium rate, 08 or its 118500 numbers. Nor can we be expected to swallow that sort of price rise ourselves."

Dominic Baliszewski, at price comparison site Broadband Choices said: "Mid-contract price rises for broadband, landline and mobile services have been a huge source of consumer frustration over the last year.

"Ofcom's proposal to implement rules allowing customers to leave their contract without penalty if providers raise costs would be great news for customers. Most people feel that the price they sign up to should be the price they pay for the contract duration.

The consultation closes on 14 March 2013 and Ofcom expects to publish a decision in June this year.