More than £1 billion was wiped from the value of Britain’s biggest mobile operators today after Ofcom said it planned to ban inflation-linked price rises mid-way through contracts amid a crackdown on practices that it said cause ‘harm’ to consumers.
The media and telecoms regulator said it would lay out fresh rules requiring that any price written into a customer’s contract would need to be set out in pounds and pence, prominently and transparently, at the point of sale, rather than by using complicated terms like CPI and RPI.
“Inflation-linked mid-contract price rise terms can cause substantial amounts of consumer harm by complicating the process of shopping for a deal, limiting consumer engagement, and making competition less effective as a result,” Ofcom said.
EE owner BT’s shares slipped 3.4% after markets opened this morning, while Vodafone shares slid 1.1% and O2 owner Telefonica’s shares fell 2%.
The majority of mobile and broadband providers have inflation-linked pricing mechanisms tied into contracts, with price rises typically set at 3.9 percentage points above the rate of CPI inflation. That means some contracts cost as much as 30% more than they did two years ago, based on the high levels of inflation seen in the UK since the start of last year.
Ofcom said its research showed more than half of broadband customers and pay monthly mobile customers do not know what inflation rates such as CPI and RPI measure, while between January and October this year it had received over 800 complaints related to price rises – almost double the volume of complaints received during the same period in 2021.
CEO Dame Melanie Dawes said: “At a time when household finances are under serious strain, customers need prices to be crystal clear.
“But most people are left confused by the sheer complexity and unpredictability of inflation-linked price rise terms written into their contract, which undermines customers’ ability to shop around.”
It comes amid increasingly intense scrutiny over the rates that operators charge customers who have stuck to the same mobile contracts over multiple years.
Last week, British mobile operators faced a £3.3 billion class action lawsuit which alleged that loyal customers were being offered deals on worse terms than new ones.
Vodafone CEO Margherita Della Valle has defended the company’s policy of pushing up prices well above the rate of inflation, describing it as a “well-established mechanism.”
