Updated BT is ditching mid-contract price hikes linked to inflation before Britain's comms regulator issues a blanket ban in pursuit of greater transparency for customers.
Ofcom took acloser inspection of the pricing landscape for mobile phone and web services in 2023 and determined that fresh rules are needed to govern the industry, saying telcos need to state exactly in pounds and pence what price rises will be and when they are scheduled to kick in.
Marc Allera, head of BT Group's Consumer division,said in a blog that "price change is never an easy conversation to have with customers, particularly when so many people are dealing with the increased costs of living.
"But it is a necessary conversation to have to help us manage our own rising costs and investments we're making into networks and customer service, while also protecting those customers in vulnerable circumstances, suffering from financial hardship or digital exclusion."
Under the current model, BT adjusts tariffs for mobile phone and broadband contracts at the end of every March, linked to the rate of inflation, specifically the Consumer Price Index (CPI) – something BT introduced in 2019 under Ofcom's Fairness for Customers commitments.
This is the very thing Ofcom found in its consultation last year that can be confusing for consumers and businesses as they don't have certainty on what the bill will be.
Last year, customers saw price increases of 14.4 percent (contracted CPI 10.5 percent plus 3.9 percent on top from BT).
Customers struggle to calculate the impact "because inflation can go up by different amounts each year, and isn't set until the December CPI figure is published in January. They [Ofcom] made clear that while price increases within contract are OK, they must be set out more clearly," said Allera.
Ofcom's proposed amended regulation requires a telco to write the price increase change in pounds and pence into a customer's contract. This has to be done "prominently and transparently at the point of sale. That includes being clear about when any changes to prices will occur," said the exec.
The final decision on telco pricing methodology is due in the coming months and new pricing models need to be in place four months later.
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"So, starting in early summer, we will introduce a pricing model consistent with Ofcom's approach, moving away from % figures and CPI, and offering instead, a clear and simple view of any changes in 'pounds and pence,'" Allera said.
"For new and re-contracting mobile customers we expect this increase to be from £1.50 (for Sim Only and Airtime, for example), and for broadband customers £3," he added.
This doesn't mean that BT will forgo the next planned price hike of 3.9 percent at the end of March – again linked to CPI – just that it will adhere to the updated regulation when it needs to comply. BT will not initiate two price rises this year.
Kester Mann, CCS Insight director of consumer and connectivity, told us BT is "anticipating the likely ban on inflation-linked pricing" following Ofcom's consultation. "It gives the operator a short window to promote a clearer and more transparent approach compared to its rivals before most other operators inevitably follow suit."
The timing coincides with many operators expected to confirm their annual price rises for 2024 today. CPI in the year to December 2023 grew 4 percent, the Office of National Staisticssaid today.
"This is a delicate topic as households continue to grapple with cost-of-living concerns. Operators need to tread carefully: in CCS Insight's consumer research last month, nearly three-quarters of people said they would consider acting if their mobile or broadband bill went up again this year," Mann added.
"The ball is now in the court of the UK's other operators, some of which will probably quickly follow BT's lead. But for would-be partners Vodafone and Three, it'll mean some crucial decisions given that their pricing strategy will be scrutinized by the competition watchdog as part of a major upcoming investigation into their planned merger."
We asked Three, Vodafone, Virgin Media O2, and TalkTalk to comment, but none of them replied. ®
Updated at 12.01 UTC on January 17, 2023, to add:
A spokesperson at Three told us: "We are engaging constructively with Ofcom on its consultation on proposals to ban price increases linked to uncertain future inflation."
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