Britain’s biggest telecoms providers are preparing to launch inflation-busting price increases for broadband and mobile contracts this spring, hitting consumers with a combined bill worth £600m more than if these deals had matched the cost of living.
BT, EE, Vodafone, Virgin Media, O2 and TalkTalk are to increase bills for tens of millions of customers under “mid-contract price rises” from April and May.
The telecoms firms use a range of methods to ratchet up the annual cost of bills to take account of inflation part way through an agreed fixed term, in a practice not allowed in other utility sectors such as electricity and gas.
With the consumer price index (CPI) measure of inflation at 10.5%, charities are warning that millions of people will face unaffordable price increases this spring.
Official figures on Wednesday are expected to show that inflation fell to about 10.2% in January, although it will remain among the highest rates in four decades.
Some telecoms providers also use the retail price index (RPI) measure of inflation, which is typically higher. Many firms are set to increase prices above inflation, with some adding up to 3.9 percentage points on top of the official rate.
BT and Vodafone add 3.9 percentage points to the rate of the December CPI. Virgin Media is pushing through an average 13.8% rise, although customers will have a month to decide whether they want to leave.
This week O2 will reveal the scale of its price rise, which is based on January’s RPI plus 3.9 percentage points. Given RPI in December was 13.4%, a typical customer could be facing a 17%-plus annual rise. The company said the real increase would be closer to 9-10% as it applied to calls and data only, not the significant cost of payments for handsets that are part of bills.
However, from next year Virgin Media O2, the parent company of both brands, intends to roll out the RPI plus 3.9 percentage point mechanism across its entire TV and broadband business, not just the mobile phone arm.
If the UK’s biggest broadband and telecoms companies were to limit their increases to the level of inflation, scrapping any rise above that, British consumers could save an estimated £600m-plus on their annual bills.
The figures come as the telecoms regulator Ofcom investigates the widespread practice of mid-contract price rises. Consumers are expected to face more than £2bn in additional charges this year.
This follows a separate investigation into the sales practices of telecoms operators, and another by the UK advertising watchdog into whether companies are misleading consumers with their marketing.
Michelle Donelan, the secretary of state for the newly formed Department for Science, Innovation and Technology, said: “I brought together bosses from across the telecoms industry and urged them to reconsider increasing prices above inflation during this difficult period.
“We currently enjoy some of the lowest telecoms prices in Europe while also rolling out new infrastructure at record speed, but prices and the cost of living must be our priority.”
In September, Ofcom said a record 8m UK households were facing problems paying mobile, broadband, pay-TV and streaming bills.
Telecoms operators say they have to push through big increases to cover their own soaring costs.
BT has said a small weekly bill rise for its other customers represents good value for consumers who are increasing their amount of internet and data usage each year.
“We expect our price change will mean an average increase of just over £1 a week for most people on broadband or mobile,” said Nick Lane, its managing director of customer services. “Meanwhile, costs are going up by considerably more for everything else – energy costs the starkest example.”
Vodafone said that while its inflation plus 3.9 percentage-point policy was in place, this level of rise had not yet been formally confirmed for implementation in the UK.
Some telecoms companies do not believe such big rises are necessary. Last week, Sky announced a below-inflation 8.1% increase for TV and broadband customers, after a 5% rise last year – half the industry average.
“Sky does not pin customer prices to inflation as we don’t believe CPI or RPI – which use the price of items including bin liners, beer and burgers – should determine people’s broadband and mobile prices,” said Stephen van Rooyen, the chief executive of Sky in the UK and the Republic of Ireland.
The broadband company Hyperoptic has gone as far as launching a TV ad campaign criticising the practice of mid-contract prices rises, after conducting research that found about 60% of the 15m broadband homes set to see price rises did not realise the increase was coming.
“Asking customers to pay more in the middle of their contract for zero improvement to their service is impossible to justify, but people are just expected to swallow it,” said Dana Tobak, the chief executive of Hyperoptic. “Price increases should be linked to increased value, not just forced upon people who rely on your service and can’t leave without paying a penalty. There are ways to treat your customers with respect and still be a profitable business.”
