Original article ISPreview UK:
The Secretary of State for Science, Innovation and Technology (DSIT), Liz Kendall, has now joined the chorus of displeasure at O2’s recent decision (here) to increase their annual mid-contract price rises beyond what customers agreed when they signed-up. In response, the minister has directed Ofcom’s CEO, Dame Melanie Dawes, to “look at in-contract price rises again“.
At the start of 2025 the industry regulator began requiring telecoms providers to adopt a new approach to mid-contract price hikes, which did away with the confusing percentage and inflation-based model (i.e. ISPs promoted mid-contract increases as CPI + 3.8% or similar) – replacing it with one that must now set out such price rises “clearly and up-front, in pounds and pence, when a customer signs up” (here). This made annual price hikes clearer and more transparent, but not necessarily cheaper.
NOTE: The Consumer Price Index (CPI) level of inflation started the year at 3% (Jan 2025) and has since crept up to 3.8%. But last year it was originally forecast to be closer to 2% by now and many telecoms providers will have set their policies based, in part, on that expectation.
In response, many providers later followed BT’s lead by setting out a new pricing policy that would increase the monthly price that customers pay by a flat £3 extra – effective from March or April each year (the level of increase can vary a bit between providers). But inflation has remained higher than originally anticipated and, partly as a result of that, BT recently announced that they would increase their annual hikes by an extra pound to £4.
Other providers have since started to follow by BT’s lead, but what really seems to have caught everyone’s attention was O2’s decision to go a step further by applying this to existing customers too (i.e. those who had signed-up via the previous policy). In fairness, O2 did allow customers impacted by this to exit their contract penalty free, which Ofcom acknowledged when expressing their own somewhat weak “disappointment” at the change last week (here).
However, the regulator also pointed out that O2’s approach goes against the “spirit” of their change, not least by ruining price transparency for consumers (i.e. we’re back to not being able to trust that ISPs won’t change the rules on us mid-flight). But Ofcom also failed to address the fact that the policies being adopted by most providers have a nasty tendency to unfairly penalise those on cheaper packages (the same increase is applied, regardless of how much your monthly package costs).
The Government’s Turn
The government have clearly been keeping an eye on all this, which last night resulted in Liz Kendall (MP), Secretary of State for DSIT, publishing a new Open Letter that directs Ofcom’s boss to “look at in-contract price rises again“. The letter also made several key recommendations and suggestions for the regulator (the letter is fairly short, so we’ll publish it in full first):
Liz Kendall’s Key Recommendations for Ofcom
1. Look at in-contract price rises again.
2. Undertake a “rapid review” on how easy it is for customers to switch providers.
3. Deliver increased transparency in telecoms bills, which could follow the same mould as “recent changes on electricity bills” to help highlight the costs of specific components of those bills.
4. Consider the possibility of adopting a similar regime to those such as insurance, where new and existing customers need to be offered the same deal.
Liz Kendall’s Open Letter to Ofcom
Dear Dame Melanie,
As we discussed when we met earlier this month, driving down inflationary costs and protecting consumers are vitally important for this government.
As such, I welcome both the action you took in January to increase transparency on how in-contract prices are presented in new contracts, and your statement yesterday expressing disappointment with O2’s price rises. I strongly agree they are against the spirit of your previous changes on pricing, and all the more disappointing given the current pressures on consumers.
Nevertheless, I believe we need to go further, faster. I am keen that we look at in-contract price rises again. O2’s recent decision to increase prices above the levels specified in the contract means that, under Ofcom’s rules, its customers can leave free of charge within 30 days. I would welcome your undertaking a rapid review on how easy it is for customers to switch providers – if companies are determined to increase pricing, it is beholden on us to make sure that customers are able to go elsewhere as easily as possible.
Similarly, I believe that, as with recent changes on electricity bills – which provide for greater transparency about the costs of specific components of those bills – increased transparency in telecoms bills could be a helpful mechanism to drive further clarity on pricing and investment. I would welcome views on how best to achieve that.
In addition, recognising that there is a decreasing number of people on legacy contracts but in an effort to take all action possible, would you write to telecoms companies to ask them to clearly and urgently communicate to customers with pre-January 2025 contracts, to ensure that those people are appropriately informed of their upcoming price rises. I would also welcome your assessment of the impact of the January changes to help us all identify where further transparency measures might be merited.
Finally, you will be aware that there have been calls for the sector to have a similar regime to those such as insurance, where new and existing customers need to be offered the same deal. So, for example, when an existing customer looks to renew their contract with their provider, they are provided with the price they would be charged if they were a new customer and have a choice over which deal to take. I understand Ofcom developed a discussion paper on this in 2023, and I would urge you to look at this as soon as possible.
I know you will agree that it is imperative that ordinary people feel empowered when interacting with the telecoms market, and that they can be confident they are getting a fair deal. So, given the importance of this agenda, I would be grateful if I could have a response by November 7th. My officials stand ready to discuss next week if helpful. I am, of course, very open if you have other suggestions in this space.
Yours sincerely
The Rt Hon Liz Kendall MP
Secretary of State for Science, Innovation and Technology
In fairness to Ofcom, switching between telecoms providers has been made significantly quicker and easier in recent years thanks to systems like One Touch Switching (OTS) on broadband + landline phone and Text-to-Switch (Auto-Switch) on mobile. Likewise, we’re all for more transparency on telecoms bills, although this specific area hasn’t really caused too many complaints.
The key suggestion above seems to be where Kendall calls on Ofcom to consider the possibility of adopting a similar regime to those such as insurance, where new and existing customers need to be offered the same deal. Leaving aside the fact that these are two VERY different markets, there’s a risk that such an approach might choke-off the ability of providers to attract new customers via discounts, which might also reduce switching and thus risk raising prices.
In the above scenario, we continue to think it might be better to simply ban the practice of mid-contract price hikes, which wouldn’t stop ISPs from discounting the price across your first contract term. But even this approach does run into the potential for similar caveats, since some offers (e.g. 3-6 months free service on a 24-month term) might also be choked off. But we dare say that consumers would find general price reductions for the first term to still be both easier to understand and much easier to advertise, as well as to compare between providers. Convoluted discounts are a headache when it comes to service comparisons.
The law of unintended consequences remains a tricky one to balance, but it’s becoming increasingly clear that Ofcom’s last attempt at a halfway house style solution has not worked as well as they would have hoped. Instead, consumers who can least afford it (i.e. those on cheaper packages) are being hit by the biggest hikes and transparency is also being wrecked by providers changing the rules mid-flight. We await Ofcom’s solution with great interest.
