Telecoms providers face enhanced regulatory scrutiny on mid-contract price increases

The ASA recently published six rulings against major telecom firms. It follows the introduction of new Ofcom rules, effective from 17 January 2025, which ban mid-contract price increases linked to inflation.

Telecom providers have consistently faced increasing regulatory scrutiny, particularly at the point of sale and in their advertising, with a strong focus on consumer protection. The new Ofcom rules and ASA rulings serve as a reminder of the ongoing challenges.

Prior to the publication of the new Ofcom rules in July, telecom providers commonly included provisions in their contracts that permitted mid-contract prince increased tied to inflation. These terms had to be disclosed at the point of sale.

In practice, this usually involved direct references next to the monthly price, indicating the applicable consumer price index (CPI) or retail price index (RPI) from a specific month, along with an additional fixed percentage added by telecom providers. In recent years, with inflation soaring to substantial levels, customers frequently encountered significant price hikes during their contract periods for their telecom products.

This approach was defended as necessary to keep up with rising operational costs. However, it often led to consumer dissatisfaction due to unexpected price hikes during the contract period. Regulatory bodies like Ofcom and the ASA received numerous complaints about this practice, citing a lack of transparency and fairness.

Despite these issues, the practice remained widespread until the new regulations were introduced this summer.

The new Ofcom rules set out specific compliance requirements for telecom firms. Providers must ensure clear pricing information, clearly stating any in-contract increases in fixed monetary amounts at the point of sale. This includes in their advertising to consumers, displaying the total increase in price and not just the percentage amount of increase. This measure sets out to ensure that customers will know exactly how much their bills could increase during the contract period.

Any price rise terms must be prominently disclosed before the customer signs the contract. This includes during sales calls, in-store sales, and online transactions. Providers must also specify when any changes to the monthly price will occur, giving consumer a clear understanding of their financial commitments.

The blanket ban on inflation-linked or percentage-based increase terms in new contracts is designed to enhance transparency and enable consumers to make well informed decisions, thereby protecting them from unforeseen financial burdens and ensuring greater predictability in their monthly expenses

Despite the new Ofcom rules being applicable from next year, the ASA has recently issued six rulings against telecom providers for failing to comply with its last CAP guidance on mid-contract price increases from 2023.

The primary implication of these rulings is that telecom providers are already under regulatory scrutiny in relation to their mid-contract price increases, well ahead of the Ofcom deadline of January 2025. The requirement will become even more stringent when the Ofcom rules actually come into force, as the total increased price will also have to be displayed, not only the amount of the increase.

This will undoubtedly present significant challenges from an implementation perspective, as different products will inevitably have different increase amounts, with some plans experiencing multiple increases over the contract’s duration.

This represents yet another instance of heightened transparency requirements aimed at consumer protection, driven by regulatory initiatives. Ofcom and the ASA continually implement new rules to ensure consumers are adequately informed when making purchasing decisions and are shielded from unfair practices. These regulatory bodies seem to hold the view that clear and transparent information is essential for consumers to make well-informed decisions, especially in complex markets like telecommunications.

By mandating explicit disclosures and prohibiting ambiguous terms, regulators seek to mitigate the risk of unexpected financial burdens and enhance consumer trust. This proactive regulatory approach underscores a broader commitment to consumer rights and market fairness, ensuring that companies operate with integrity and accountability.

Co-written by Julie Campana of Pinsent Masons.