Ofcom looks at contract opt-outs as users rage over price hikes UK communications watchdog Ofcom is consulting on whether Brits should be allowed to pull out of any communications contract if the price changes, following widespread outrage at the practice. The consultation proposes that any change in price would let customers off the hook, letting them walk away from contracts without …
Indeed! A remarkably sloppy piece from Mr Ray who normally is bang on the money on the telcos. Obviously a bit to close to his sources on this.
Inflation - in whatever measure RPI, CPI, etc. - is only relevant to policy or contracts that stipulate it. They only justification for increasing charges during a contract are costs imposed by statute such as, say an increase in VAT. Otherwise, inflation is a business-specific charge and not a problem for telecommunications. Contract costs come from the amortisation of existing equipment and licences, maintenance of equipment and staff.
In a functioning market competitive pressure should prevent all operators from raising prices together. If operators are free to raise prices but consumers are not free to refuse such increases then the market is not functioning properly and Ofcom as regulator should step in and either reverse the increases or allow customers to leave. As the handsets are the sole property of the phone companies until they are paid off, Ofcom could help by making this clear in contracts so that the loan part of the contract can be maintained.
Thanks for saving me the time to write that, can't believe it's so far down in the comments, from the article you might form the impression that everyone bought their phones at the same time then the poor telco had to try and survive for two years until the next payday, the reality is that there's a constant stream of new customers signing up and if the telco believes those customers are going to incur greater costs over the course of their contracts then that should be reflected in the price.
Adjusting existing contracts to subsidise new customers is at best lazy and at worst criminal.
In one respect, you are quite right. The hardware costs all come down over time. Indeed any hardware over 3 years old had already been written off in accountancy terms (usually, unless the 3 year amortisation of IT has changed and i've not kept up with it).
However, you seem to forget about all of the other side of the argument.
The hardware doesn't all magically just work, it takes people to make it work. People are a cost that constantly increases (or you constantly replace them with worse and worse staff). If you don't own any/all of the property (for those staff and for the equipment), then the cost tends to increase over time.
Having said that, I do agree that if you sign a contract for a fixed term, then the monthly price for the fixed term should stay the same - as should what the contract is for. Many companies have altered their FUP in the last year (mostly dropping from 3GB to 500MB a month), which apparently wasn't enough to rescind the contract - even though that was likely to place a large material burden on the contract signee.
If you can't guarantee you'll be able to keep the same prices for the length of my contract, I can't guarantee my ability to keep paying it.
2 years may be "a very long time" in the communications market (though when it comes to suppliers, I'd bet they all negotiate longer term deals, so I'd dispute that somewhat), but it's not like a mobile provider's customers ALL join at once, and so that company is left unable to do ANYTHING for the rest of the period - their customers join (and leave) every day, so just make any increases apply to NEW customers.
The trouble is that the networks have very little pricing power with respect to new customers, because there is a lot of competition and a customer can almost always get a cheaper deal somewhere else. Similarly, although a network is free to increase the price for customers who are out of contract and still paying (and I have no problem with this) they once again have very little pricing power for customers who are price sensitive. (Ring up your network, ask for a PAC code, and see how low they will go with the offers to try to prevent you from leaving). The only customers they do have pricing power over are the ones on fixed term contracts who cannot leave, assuming the regulator agrees that they can't leave. So they push it as far as they can.
The trouble is that the networks have very little pricing power with respect to new customers, because there is a lot of competition and a customer can almost always get a cheaper deal somewhere else.
That is known as a market and they still have a great deal of pricing power as the various infrastructure deals, etc. have illustrated. Any company that offers a contract that will lose it money over time deserves to go out of business. As Mr Orlowski pointed out several years ago, companies that continue to emphasis selling phones over services are giving away much of their bargaining power. MVNOs with little or no shop-space selling phones should actually be in a very strong position for discerning customers.
although a network is free to increase the price for customers who are out of contract
er, you have a contract as long as you are still paying. Almost all such contracts have an automatic renewal clause that is triggered unless either party cancels the contract before a specified date.
So, no sympathy for operators unable to do their sums.
You are wrong.
Mobile phone contracts do not have auto-renewal clauses. The practice is severely frowned upon by the courts and companies can be forced to change such 'unfair' terms in their contracts and be severely fined.
BT was reprimanded by Ofcom in 2011 for doing this with landline phone contracts.
The network operators in the UK do not (AFAICT) indulge in such underhandedness.
You can get yourself a shorter contract (12 months for the best deals, but once month also) by simply going SIM only. If you do, the operators have only promised you the fixed price for a shorter period of time and are so less inclined to put the price up mid contract (plus there is no expensive handset to be paid off from the monthly payments, and issues like the highly inflation sensitive implied interest rate on the time payments for this don't come up) and the customer can go and find a better deal from another network much sooner if he doesn't like what he is being offered. So these sorts of problems are much less serious with SIM only / short contracts than with subsidised handsets / long contracts. If Ofcom enforces fixed prices as suggested here, it is likely to become more financially attractive to go SIM only rather than get a longer contract with a subsidised handset than it is now. Particularly if things like a Nexus 4 for £239 stay around (and stocks are large enough to be able to actually make it possible to buy one).
The downside is of course that you have to pay the cost of the handset up front. Not everyone wants to or can do this. Going forward, though, those who don't are gong to increasingly pay more in total than those who do, I suspect.
...which will be the new frequencies being acutioned off.
For which the mobile operators will happily pay a Kings ransom, which will stuff the Treasury's coffers even fuller. The mobile operators will happily go salong with that, safe in the knowledge they can claw their invenstent, and more, back by charging mug punters even more for their contracts.
Forget "service" forget "progress". In the end, its all about yet another way of getting money out of the mugs.
If the banks can sell you CDS contracts I see no reason that an insurance could not sell you some sort of contract against inflation.
Say, you calculate your costs with 2% inflation and it suddenly jumps to 6% in the second year: the insurance kicks in and pays the difference.
In what universe is this complicated? It increases the price a bit, that's all.
I don't see a problem with the requirement to fix the pricing for the length of the contract - that IS, after all, why you're buying said contract, because of the price for the device and service.
However, the relative remaining cost of the device should be payable on the exit of the consumer from the contract - unless the device is returned fully boxed and ready for refurbishment and resell.
What they really need is a depreciation clause on the front page of the contract (in big writing) that states how much of the device is paid off each month, thus allowing the signer the option of paying off the rest of the device cost.
Here in Canada, this was a huge problem a while back., as there wasn't even a limit to the term of the contract and it got abused badly. Here is how it was fixed.
1: Fixed term contracts are now more or less a thing of the past. The operator is flat out no longer allowed to lock you in.
2: IF they finance the phone for you, they have to be upfront about how much it the phone costs and how much of it is payed each month on your bill, as well as letting you know what the balance on said phone is. They are not allowed to charge interests on this I believe. (My provider doesn't anyway)
3: If you decide to walk out, you have to pay off the rest of your phone and they have to give you a way to unlock it so you can use it on another carrier.
Paris, cause she as no fixed contract.
A contract is an agreement between two parties, right?
In this case, one party, the network operator, agrees to supply comms services to the other party, the customer. The customer for their part agrees to renumerate the network operator according to the particular tarriff they sign up for.
I have a big problem with the network operator changing the tarriff at will. In my view, that is changing the terms of one side of the contract - thereby invalidating the agreement of the other party.
Presumably the contract must have some small print, indecipherable by the average customer, which says that the tarriff is flexible, otherwise the lock-in would not be enforceable in law.
Yup. Three took pains to direct me to the relevant small print on their website, when they decided to up my monthly charges. I gave them the benefit of the doubt, and assumed that this was what was written into the contract at the time I signed it, and promptly left them the following month (fortuitous timing, really).
Well you get an upvote from me. I'm stunned at the amount of commentards here simply accepting that one party can change the terms of the deal anytime they like.
Part of the reason the Unfair Terms in Consumer Contracts Regulations Act exists is to defend against this kind of predatory mentality, but so few know it even exists. Too bad consumer contracts usually mean signing a mandatory form rather than a negotiation.
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Three don't actually have this properly written into their contract - the section they refer you to (4.3 I believe) simply says that they must give you 30 days notice if they raise your tariff by MORE than the RPI. There's nothing that actually says they can actually raise it (at all) without you being able to invoke the cancellation clause to withdraw from the contract.
Orange etc, actually do have very specific clauses stating what they can raise it by, how often they can raise it etc, which is better than Three's stunt of just raising prices, pointing to some obscure, unrelated clause that happens to mention RPI and then refusing to accept any argument against it.
The problem is that I really tried to fight Three over it, I wrote endless letters, I rang to Ofcom (who weren't interested as it was a 'commercial dispute'), and the Communications ombudsman wasn't willing to get involved either. The only avenue left was the Small Claims court who weren't interested because there wasn't an actual amount of money I was fighting for (I was simply fighting to have the contract dispute resolved with me being able to withdraw from it without penalty as stipulated in it).
Ultimately Three are hiding behind their T&Cs and it's too difficult for the average man to challenge them without going down the expensive, risky legal route.
Needless to say I've given up, but I cancelled my mobile broadband account immediately (1 month rolling contract) and *will* be leaving them at the earliest opportunity once my iPhone contract ends.
"The problem is that two years is a very long time. Guaranteeing a price until 2015 is tough, but when that money is needed to subsidise the cost of the latest iThingy, it's even harder. One can imagine a round of inflation, perhaps next year, leaving network operators in the impossible position of being unable to raise prices against rising costs."
Sorry the writer obviously has no real world experience otherwise they would be familiar with all sorts of fixed price arrangements covering: cars, houses, energy and other complex products.all for terms that can often exceed 2 years.
The writer should also take a moment to consider the history of mobile communications whereby over relatively short period of time we have seen the quantity of minutes/data increase whilst the price paid remains the same. For example my first contract with Orange ba ck in the mid 1990's was 15 minutes per month for £15 pcm, a quick look at current plans will show that the operators are giving significantly more for a £15pcm tariff. Whilst the changes over two years might not be so dramatic they still exist - I just renewed a 2 year contract and for no change in price have gained Internet access and 250MB pcm ... - funny how they never texted me whilst the 2 year contract was running to tell me that for the money I was paying they were prepared to give me more ...
No, if an operator advertises and sells a tariff as "£10.50 a month (24 months)" then it is fixed price if they want to vary the amount then it needs to be sold as "£10.50( variable) a month (24 months)" or "£10.50 a month (24 months)* " where the star refers to a written description of the terms elsewhere in the advertisement - just like interest rates/financial products. Perhaps more people need to complain to ASA about mobile telco's misleading advertisements...
Most of the replied here are regarding mobile contracts, however I think the article was more towards BT since they are the ones that have raised their rental rates this month.
Ironically (and it being 30 years of the modern internet) our broadband has been off all day and its only because of the mobile that im still online. If I had better 3G or 4G down here in the sticks of SW I would drop BT as its only used for incoming calls and adsl.
I have to make a mental note each month to make calls otherwise im charged!!
Why not enforce de-coupling of the costs of the so-called subsidised handsets from the call package itself. The handset recovery cost is completely predictable and that portion could be allowed to continue should the subscriber decide to walk if the call/data package prince increase during the period.
Of course equipment promotional offers have been subsidised by artificially high termination charges into mobile networks for years. Effectively those on fixed line networks have been subsidising handsets for years on the basis that Ofcom has allowed these as promotional costs. That's a disgraceful situation which is taking years to be resolved (all so Ofcom can artificially promote the mobile market through cross-subsidies).
As for the claim that mobile operators can't reasonably forecast their costs for a period of 24 months, then that's plain ridiculous (aside from VAT changes - which obviously don't need to be in the fixed charge part). Even if they are so incompetent as to be unable to do it, then that's just what's called a commercial risk.
Of course the truth of it is that they want such retrospective pricing policy so they can adjust their cost recovery models to allow for the cross-subsidising of new customers from old with special offers.
... when new phones hit the market I could just walk in to my local phone shop and buy one without a contract.
Most of the time I notice that it's near impossible to get a new iThingy without a minimum 18 month contract.
I agree with the idea of de-coupling the phone from the tariff, the consumer should be able to chose to buy 1 without the other if it suits them.
As a bit of a tech geek I, like many always want the latest gadget but I don't want a 2 year contract with it and it's unfair to force this on me!
I could go directly to the provider ... sometimes, but they usually direct me to my local mobile phone shop!
Also @Roland6 has a good point ... service provision only gets cheaper over time ... this inflation talk is utter crap.
The problem is that two years is a very long time. Guaranteeing a price until 2015 is tough, but when that money is needed to subsidise the cost of the latest iThingy, it's even harder. One can imagine a round of inflation, perhaps next year, leaving network operators in the impossible position of being unable to raise prices against rising costs.
How the hell is inflation between now and 2015 going to affect the cost of the iThingy bought this week? Do Apple contact the mobile operator to say "Remember that phone you bought from us wholesale eighteen months ago? Well, those damn Chinese slaves happy smiling workers are costing more to feed, so we need another hundred quid from you. Kthxbai."
There really is no reason for utility contracts - not in comms, water, gas, electricity or media - as every supplier these days is fully web administered where all the account set-up work is done by the consumer filling-in webforms.
The phone companies justify it by saying that they've supplied an expensive phone which they can only recover the cost of over many months.
I would like all such contracts to be unbundled with a separate credit agreement signed for the phone (as should happen anyway).
Then consumers could simply walk away (to another supplier who, of course, has the same regard for their customers that the one they've just left has but that's another story).
If the utitlity, media and phone companies thought their customers could walk away at any given moment they would have to change their ways. And there are no commercial arguments as to why that shouldn't be standard practice.
Any smoke screen put up about set-up costs etc could be demolished very quickly on the basis that the companies woud be asked to provide the figures. This they couldn't do.
The bundling has always irritated me for various reasons; I'd much rather pay £240 for the handset plus £10 a month over the year than £30/month for a year for a "free" handset. I think things have improved lately with far more "SIM only" offerings from most operators and more SIM-free handsets, but still not good.
At least one EU country bans SIM-locking, as I recall, another bans handset subsidies; I can't see any reason why we shouldn't do the same.
As for price changes: fixed term contract should mean fixed. If I'm committing to paying £10/month for two years, they should be committing to the same. If I don't get to phone them up and "notify" them that the payment is going *down* 10%, why should they be entitled to put it up that way? An indefinite contract, where either side can switch to another tariff freely, is fine: but if I lock in, so do they.
"Guaranteeing a price until 2015 is tough, but when that money is needed to subsidise the cost of the latest iThingy, it's even harder. "
"free/subsidised" handsets should be banned. The concept was designed 20 years ago to get people onto the new networks. As virtually everyone now has a handset there should be no need for linking into the service provision cost.
Networks should be forced to disconnect the costs of handset purchase from service provision - the current linking creates an unfair cross-subsidy for those on SIM only deals. If people really must have the newest iThingy then let them go get finance in the open market to buy it. There would also be the benefit of less old iThing's sitting in draws and maybe the iThingy manufacturers will think about getting their costs down to consumer acceptable levels as opposed to the inflated levels they can convince a network to pay - a Network that knows it can squeeze money without effort from the final customer.
While I'm ranting can the Register start a Save Our SIM (how does one start this on Facebook?) campaign to stop the American iThingy manufactures locking our phone to them and chosen Networks with wired in SIMs - I want to roam Europe and the world swapping my SIM as the plane lands - not having to negotiate with a walled garden about which carrier they will let me use.
There's a very important point you're all missing here. The only price rises that are currently allowed are those that are tied closely to appropriate independent metrics for inflation.
They **DON'T** get to lock you in and then charge whatever they want.
The current inflation rate in the UK is 2.7%. It's hardly going to break the bank on a £30pcm mobile tariff! Shut your whining.
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