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The Competition and Markets Authority is to crack down on communications services providers (CSPs) that penalise existing customers by charging them higher prices than brand new customers for broadband and mobile products, following a so-called super-complaint made by Citizens Advice.
The super-complaint, which also covers providers of mortgages and insurance policies, was made in September 2018 after it found service providers were collectively overcharging loyal customers by £4.1bn every year, working out at over £800 per home on average.
“Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated,” said CMA chief executive Andrea Coscelli. “They shouldn’t have to be constantly ‘on guard’, spending hours searching for or negotiating a good deal, to avoid being trapped into bad value contracts or falling victim to stealth price rises.”
The problem was found to be particularly acute in the broadband and mobile services sector, where a number of factors such as the plethora of different packages on the market, complex terms and conditions, lack of clarity over other available options and so on mean that when minimum contract periods or introductory rates expire, many people either aren’t aware they are being overcharged or think it is too much trouble to switch.
Vulnerable people, the elderly and those on low incomes tend to be far more at risk of paying this loyalty penalty.
The CMA’s investigation uncovered what it called “damaging practices” by firms and accused them of exploiting unsuspecting customers.
“These include continual year-on-year stealth price rises; costly exit fees; time-consuming and difficult processes to cancel contracts or switch to new providers; and requiring customers to auto-renew or not giving sufficient warning their contract will be rolled over,” said the CMA.
Read more about consumer rights
- Ofcom is rolling out a range of measures to make the broadband market serve the interests of consumers better.
- Ofcom has imposed fines totalling £13.3m on EE and Virgin Media, saying both providers levied excessive charges on customers who ended their contracts early.
- Despite calls for operators to change their ways, users are still being overcharged for their devices, says Citizens Advice.
As a result, it will now clamp down on such practice using a combination of enforcement and regulatory actions, and has now moved to set out clearly the principles businesses should follow, such as enabling people to leave a contract as easily as they entered it. It will also look at whether or not consumer law should be reinforced.
“Millions of loyal or vulnerable customers are being taken advantage of each year by firms – and end up paying much more than they should do,” said Coscelli. “This must come to an end.”
“That’s why we have today recommended a robust package of reforms. There must be a step change to protect the people being hardest hit, including targeted price caps where necessary.
“Together, the CMA, regulators and government must act more promptly and powerfully to hold firms to account, stop them exploiting their customers and restore people’s trust in markets.”
In the communications market, the CMA welcomed recent moves by Ofcom to address the situation, adding that CSPs will in future be held publicly to account for charging existing customers much more, and Ofcom will be told to annually publish the size of the loyalty penalty for each provider.
For internet service providers (ISPs), the CMA has recommended Ofcom consider a number of possible pricing interventions, such as tackling legacy service pricing and price capping to protect those who are worst hit by the loyalty penalty, alongside measures to boost consumer engagement and better promote how to switch services.
For mobile operators, the CMA said it did not consider that providers should continue to charge customers the same rate once they have effectively paid off their devices through their monthly bills, and that this was unfair and must end immediately.
Bundled handset and airtime contracts
It also voiced its support for a requirement on operators to move customers on bundled handset and airtime contracts onto a lower tariff automatically, and recommended that as with the broadband market, Ofcom should try to improve customer engagement and awareness around the switching process, and tackle low levels of awareness of SIM-only deals.
Jenni Allen, MD of Which? Money, voiced her support for the changes. “It is right that the CMA has recognised the sheer detriment this unfair practice causes many consumers, costing billions of pounds a year,” she said.
“Today’s announcement must lead to concrete results to stop customers being hit with these excessive charges. All the relevant regulators must act urgently to bring about an end to this bad practice.
“While we await the necessary action we would urge consumers unhappy with their current provider to consider switching to a better deal – a few minutes of your time could potentially save you hundreds of pounds a year.”