- Out-of-contract customers could save over £270m a year in total, after Ofcom review
- This could save one million vulnerable customers around £70 a year each
- Ofcom calls on broadband firms to go further to protect vulnerable customers
Broadband customers who are out of contract are set to benefit from a package of pricing changes and commitments from their providers, following a review by Ofcom.
The broadband market offers customers a wide range of choice, with different deals on offer to suit different needs. But Ofcom is concerned that many customers – particularly some who are facing challenges – are not benefiting from the discounts available.
So we have been reviewing the pricing practices of broadband companies and taking action to protect customers from high out-of-contract prices.[1]
In September, we secured commitments from BT, TalkTalk and Virgin Media to reduce prices automatically for vulnerable customers who are out of contract. We have now secured commitments from EE, Plusnet and Sky to do the same. EE and Plusnet have also now joined BT, Sky and TalkTalk in deciding to give all existing customers access to new customer prices.
In total, we estimate that the pricing changes made by providers since we opened our review could ultimately benefit all out-of-contract customers by over £270m per year. This would address more than half of the nearly £500m difference in what out-of-contract customers pay compared to average prices.
Following our review, all major providers have now offered protections for their vulnerable customers. We estimate this, and other pricing changes, could ultimately benefit around one million vulnerable out-of-contract customers by an average of around £70 each per year.[2]
Jane Rumble, Ofcom's Director of Consumer Policy, said: “We’ve already made it easier for people to get a discount and save money. But we’re concerned some customers who find it harder to seek better deals are missing out.
“So we’re pleased providers have done the right thing by cutting vulnerable customers’ bills. We’re now calling on them to go further and take extra steps to identify and support customers who might be vulnerable.”
Broadband pricing practices
These new measures to help vulnerable customers are part of Ofcom’s wider review of broadband pricing, in which we have analysed prices paid by millions of customers.
Overall, strong competition means most customers are getting good value for money – with companies offering discounts to attract new customers. This type of discounting is an important feature of any competitive market and naturally leads to people paying different prices for the same service – depending on when they signed up to their deal.
When a broadband customer’s initial discount comes to an end, this usually leads to a default price rise. Customers can avoid paying higher prices by negotiating a new deal or switching provider, but those who don’t are likely to be paying more than they need to. This is often referred to as the ‘loyalty penalty’.
We have found that around 40% of broadband customers (8.7 million) are out of contract. On average, these customers pay around £4.70 per month more than their provider’s average price for their service.[3] But there are significant differences between the additional amounts that different companies’ out-of-contract customers pay, and the proportions of customers who are out of contract:
How to avoid paying more than you need to
Ofcom rules introduced in February mean that customers must be warned by their provider when their current contract is ending, and what they could save by signing up to a new deal. This gives people the information they need to take action and avoid an automatic price rise at the end of their initial contract period.
We expect this to reduce the number of customers who are out of contract and paying more than they need to. We are closely monitoring the impact of these new alerts and will publish our findings next year.
Broadband providers must do more to protect customers
We welcome the swift action providers have taken to protect customers who are struggling to pay due to Covid-19. However, we believe there is room for providers to do more to protect their vulnerable customers from high out-of-contract prices more generally. We have set out three main steps we want providers to take:
- Better identification of vulnerable customers. Last week, we published a guide on treating vulnerable customers fairly, which contains steps providers can take in relation to this.
- Better support for vulnerable customers who have been out of contract for a long time. Providers should consider strengthening their existing commitments for vulnerable customers to ensure people who struggle to engage do not pay high prices as a result.
- Additional help for those who are struggling to pay their bills. Some customers have found themselves in financial difficulty due to the coronavirus. We welcome steps providers have taken to support customers so far, and have called on industry to be proactive in engaging with customers who are struggling to pay. This includes offering customers a cheaper tariff, for example, where they are in debt and on a high out-of-contract tariff.
We will continue to monitor pricing practices in the broadband market and step in to protect customers if necessary.
NOTES TO EDITORS
1. Generally, where we talk about a ‘contract’ – for example, customers being ‘out of contract’ or ‘in contract’ – this refers to a customer’s fixed commitment period. That is, the period of time over which a customer cannot cancel their services or switch to a different provider without paying a cancellation charge.
2. Customers defined by their provider as vulnerable are those who have disclosed a vulnerability to their provider. In addition, Virgin Media also defines those who are aged 65+ and have been “inactive” for 3 years as vulnerable.
3. We use the average price as the benchmark, rather than the cheapest price, because it more closely approximates the price that out-of-contract customers might pay if we saw significant numbers of these customers moving to cheaper deals.