UK consumers could soon be able to exit their mobile phone or broadband contracts early if their provider raises prices, thanks to proposals set out by the communications regulator Ofcom.
Under current rules, 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 without penalty following such notice.
However, Ofcom has not issued any guidance on what is likely to constitute “material detriment,” leaving it for providers to consider the matter on a case by case basis.
Before Christmas, for example, mobile operator O2 announced plans to increase the price of its mobile phone contracts by 3.2 percent from 28 February. Disgruntled customers who want to cancel their contract as a result must pay a fee, as O2's terms and conditions allow it to put up prices once every 12 months.
Under Ofcom's new proposals, landline, broadband and mobile providers would be expected to inform consumers about the potential for price increases and of their right to cancel the contract in the event of any price increase. Consumers that choose to exit their contract would be able to do so without penalty, regardless of the detriment caused.
“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,” said Claudio Pollack, Ofcom’s Consumer Group Director.
“Ofcom is consulting on rules that we propose would give consumers a fair deal in relation to mid-contract price rises.”
While the “exit without penalty” rule is Ofcom's preferred solution, the consultation also considers three other possible approaches to address price rises in fixed term contracts.
One option is to simply tackle the current lack of transparency around the potential for price increases, without obliging providers to release customers mid-contract. Another is to offer guidance on how providers should interpret regulations around price increases, in particular the definition of “material detriment”.
A third option is to require consumers to actively ‘opt-in’ to a variable price contract. However, Ofcom believes that none of these will be sufficient to address the consumer harm identified in its recent review into the fairness of certain contract terms.
A complete ban on price rises in fixed contracts has also been considered. However, Ofcom does not think this would be consistent with the European legal framework, so it is not presented as an option for consultation.
Ofcom is now inviting stakeholders to offer views on all the options put forward for consultation. The consultation closes on 14 March 2013 and Ofcom expects to publish a decision in June 2013.