The UK’s largest mobile and broadband companies have been accused of fuelling “greedflation” after pushing through the biggest round of price hikes for more than 30 years.
It comes ahead of a meeting on Wednesday at which the chancellor, Jeremy Hunt, will order industry regulators to take tougher action to curb inflation.
Analysis published by the Guardian today reveals that six companies controlling most of the telecoms market all charged a 3.9 percentage point supplement on top of their annual inflation-linked increases this year.
The practice means millions of customers have faced mid-contract price increases of up to 17.3%, which economists said risked prolonging the cost of living crisis and adding to the pressure on the Bank of England to raise interest rates.
Labour accused the government of being “asleep at the wheel” on broadband pricing, while the telecoms regulator Ofcom responded by saying it was “taking a close look” at the issue “to consider whether tougher protections are needed”.
Morgan Wild, head of policy at Citizens Advice, said: “We called on firms to support their customers during this incredibly challenging time, but many chose not to listen and instead pushed on with price rises.”
This year’s charges have generated billions of pounds in extra revenue for providers, according to estimates by the price comparison website Uswitch, while hitting the average customer with an annual bill increase of £222 for broadband and £114 for mobile.
The biggest increases were for mobile phone customers of Virgin Media O2, which imposed a rise of up to 17.3% in April – 3.9 percentage points on top of the retail price index (RPI), which stood at 13.4% in January, the reference month it uses. The RPI is typically higher than the consumer price index measure of inflation, which most other telecoms operators use, and was at 10.1% in the same month.
The practice of adding a 3.9 percentage point supplement began during the pandemic, when inflation was near zero. BT was the first mover in September 2020. Despite a surge in inflation over the following months, more and more providers have adopted price increases of inflation plus 3.9 percentage points, including Vodafone, Three, and Virgin Media O2. Smaller suppliers Tesco Mobile and iD Mobile have also done so. As of this spring, the model is being used by at least six companies across 11 separate mobile and broadband brands.
Andrew Sentance, a former member of the Bank’s rate-setting monetary policy committee, said regulators appeared to have been “caught napping” by the practice and called for tougher action to stop firms ripping off consumers.
“Where has this 3.9% come from? It seems to be uniform across the industry – which is the sort of thing a regulator should be concerned about. They have been caught napping by the shift up in inflation.”
Jeremy Hunt is to hold meetings with regulators on Wednesday to ask them what they are doing about any companies exploiting rampant inflation by raising prices, including the Competition and Markets Authority and Ofcom, the telecoms watchdog.
Mid-contract price rises usually take effect in March or April each year and apply to all customers on contracts with relevant terms, regardless of when they signed up to the deal, affecting millions of consumers across Britain. Contracts tend to last between one and two years, and customers typically must pay a penalty if they leave before the contract expires. But many are being asked to sign up without the guarantee of a fixed price.
Ofcom does not regulate prices in the broadband and mobile retail markets, where it says the choice of providers offers enough competition, but it can intervene where a provider has significant market power. It launched a review of mid-contract rises in February after finding that one-third of customers did not know whether their provider could hike prices.
Labour said it would ban mid-contract price rises. Lucy Powell, the shadow culture secretary, said: “It’s increasingly clear that government has been asleep at the wheel when it comes to broadband price increases.
“The eye-watering rises we have seen are a direct result of their wrong approach to competition in the broadband market which is harming consumers, hitting families struggling with the cost of living crisis, and contributing to the worsening economic outlook.”
Official figures show price rises by mobile phone and broadband providers drove inflation in telecommunications services in May to the highest level since 1991, with an annual rise of 9.1%.
The regulator said: “Ofcom has repeatedly called on providers to think very carefully about whether significant price rises are justified during an exceptional period of hardship for many people. However, in recent months, we’ve seen more providers move to an inflation-based calculation, limiting customers’ choice of contracts that are not subject to these price rises.
“We’re taking a close look at these issues to consider whether tougher protections are needed.”
Chris Pike, head of digital markets at Fideres, a global economics consultancy which investigates corporate and financial matters, said: “This is not the sort of stuff that should be happening in a competitive market.
“Whether this is explicitly agreed, or whether this is tacit – in the sense they all see what they’re doing and follow it – each of those can be a competition problem.”
Telecoms firms argue price increases are vital for funding investment in their networks amid surging demand for broadband and mobile services, as more people shop and work remotely, and stream data-intensive TV, film and music.
They also highlight that consumers can shop around for a cheaper deal or haggle for better terms. The industry also provides cheaper social tariffs for people on benefits. However, just 5% of eligible households are signed up.
Gail Cartmail, executive head of operations for Unite, said the price hikes were leading to an “endless cycle of greedflation”.
“Failures by regulators are fuelling the attack on living standards,” she said.
Spokespersons for BT, Three, Virgin Media O2 and Vodafone said that while they understood consumers were under pressure, they faced their own increases in costs and needed to put up prices to continue investing in improving services.
