Ofcom proposes stiffer exit without penalty clause
The fact the vast majority of homes in the UK have the option of hundreds of broadband retail providers means that competition is fierce to gain customers and results in a market with offers changing daily from half price introductory fees to free shopping vouchers.
In the midst of this writhing mass of competition Ofcom is attempting to make life easier for the consumer. A new consultation has launched that is asking for feedback on new proposals that will impose a much easier 'exit without penalty clause' so that consumers can leave a provider if the price goes up during the term of a fixed contract for telephone, mobile and broadband services. The current situation is that providers have to give one months notice of price changes, but people can only leave if the rise constitutes a 'material detriment' and with the Ofcom light touch approach to regulation this to date has meant no solid definition of what is material detriment. The end result that some providers allow people to leave if the price rises even by a penny, but others consider £1 per month to be insignificant.
Under current Ofcom rules (General Condition 9.6), 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.
To date, Ofcom has not issued any guidance on what is likely to constitute ‘material detriment’, leaving it for Communications Providers to consider the matter on a case by case basis. This has resulted in different interpretations of what constitutes ‘material detriment’ by providers and when the obligations under General Condition 9.6 are triggered.Current rules on price changes
In the nine months to May 2012 Ofcom received 1,622 complaints related to changes in service terms and conditions, with many complaints relating to consumers not being aware that there may be price rises during the term of a contract. We believe that a good few of the complaints may have been due to people signing up to the big promotional figure of £3.25 for 9 months and not realising that half way through the 18 month contract the price would double to £6.50 per month.
One area that will greatly complicate the new rules is the Ofcom mandated retail price index based rises that Openreach and BT Wholesale is allowed each year for their wholesale products. The last round of changes actually saw the prices drop slightly, with Ofcom and lots of the press predicting retail price cuts, but due to other price pressures (e.g. cost of call bundles, subsidised hardware, cost of promotions) the retail pricing actually increased particularly for voice line rental.