Loyalty penalties for broadband, mobile and TV finally tackled

Ofcom has introduced rules which will aim to tackle ‘penalties’ imposed on renewing customers by broadband, mobile and content providers.

As part of the new rules, providers will have to inform customers 10 to 40 days prior to the end of the customers contract, the period where financial penalties would be applied for changing providers. In the notification, customers will be told the end date of the contract, differences in contract pricing moving forward, termination conditions and availability of cheaper deals.

Although customers will still have to be proactive in contacting rival competitors for better deals on the market, the hope is a more transparent approach with spur consumers into finding the best possible option. Telcos will have a year to ensure the right business processes and technologies are in place to action the rules.

“We’re making sure customers are treated fairly, by making companies give them the information they need, when they need it,” said Lindsey Fussell, Ofcom’s Consumer Group Director.

“This will put power in the hands of millions of people who’re paying more than necessary when they’re no longer tied to a contract.”

The initial idea was put forward back in December, with the belief as many as 20 million UK consumers have passed their initial contract period and could be paying more than necessary. The Department of Digital, Culture, Media and Sport escalated the issue in February with a public consultation aimed at moving the industry towards a position where loyalty was rewarded, ending aggressive cultures towards customer acquisition.

In September last year, the UK Citizens Advice Bureau (CAB) launched a super-complaint with the Competition and Markets Authority (CMA) suggesting service providers over-charging renewing customers to bring in an extra £4.1 billion a year. Research commissioned by Broadband Genie has found many over 55s could be paying too much for their broadband service but lack the knowledge or confidence to choose a new package.

“Pre-emptive alerts and information about broadband and TV contract periods are good news for consumers since many have in effect been paying a premium for their loyalty once out of contract,” said Adrian Baschnonga, EY’s Telecoms Lead Analyst. “Today’s rules pave the way for a more proactive dialogue between service providers and their customers, which can unlock higher levels of satisfaction in the long term.”

While it will certainly take some work to bed in, such rules have the potential to move attitudes in the industry to prioritise customer retention over acquisition to meet profitability objectives. Much research points to this being a more rewarding approach to business, though few in the telco space practice this theory.

“uSwitch’s research found that the aggregate cost of out-of-contract charges to telecoms consumers is £41 a second,” said Richard Neudegg, Head of Regulation at uSwitch.com. “This is why time is of the essence – everyday spent waiting for these notifications to be rolled out, another £3.5 million is overspent on these services – meaning that more than £350 million has already been wasted since the consultation closed in February.

“While it has been a long time coming, this is an important step by the regulator to address what has long been a clearly unacceptable gap in the rules, penalising consumers to the tune of millions.”

This is a step in the right direction, but it will take more to ensure telcos shift their culture. The idea of customer acquisition over retention is deeply engrained in every aspect of the business and will define how the business operates. That said, progress is progress.

SFR gets fined for the print of its fine print

French telco SFR has lost its argument in the Paris Court of Appeal for illegal and abusive clauses, with the ruling also noting font size T&Cs was too small for the consumer to fully appreciate the contract.

The case itself was brought forward by French consumer group UFC-Que Choisir, which claimed a number of the clauses in SFR contracts were not fair to the consumer. One of these clauses allowed SFR to deny responsibility for any network issues resulting in up to 10% failure rate in calls and texts. Another clause would allow the telco to add additional fees to the users contract should the user want to change payment method.

These clauses would certainly be of interest, but perhaps the most bizarre aspect of this case is the ruling on font size. The Paris Court of Appeal upheld the complaint that 3mm was too small for users to read and appropriately understand the agreement into which they were entering. This is of course a common tactic for the more nefarious individuals and organizations around the world, but considering the ‘creative’ advertising strategies which we have seen in the telco space, we are not surprised by any underhanded tactics employed by operators to secure additional profits.

Whether this is the beginning of another trend remains to be seen. The ‘up to’ metric is being done away with and operators are generally being forced to be more realistic with speed promises in advertising, but the T&Cs is another area which needs to be addressed. Right now understanding mobile contracts comprehensively is limited to those with legal degrees, this is unfair and unreasonable so should be given consideration. Making the type font bigger would certainly help.

UK operators accused of ripping off loyal punters at the end of bundle deals

The UK Citizen’s Advice service has advised that UK citizens are getting rinsed by their operators when they come to the end of subsidised phone contracts.

One of the major reasons we sign up to two-year contracts is that we want a shiny new smartphone but haven’t got the cash to pay for one up-front. For decades operators have looked to entice customers by effectively offering to finance the purchase of said smartphone in return for a post-paid contract commitment. The total cost of ownership is invariably greater than buying the handset yourself and then going SIM-only, but that’s a price many are willing to pay.

But according to Citizen’s Advice, unless they specifically ask for a new contract, customers of Vodafone, EE and Three continue to be charged at the same rate even after their lock-in period has expired. In other words, even after they’ve paid the phone off they continue to be charged as if they hadn’t.

“Some of the largest mobile phone providers are routinely overcharging their loyal customers,” said Gillian Guy, Chief Exec of Citizens Advice. “Mobile phones are now an essential part of modern life, but the way that the cost of handsets are hidden within some mobile phone contracts gives phone providers a way to exploit their customers.

“It is clearly unfair that some phone providers are charging loyal customers for handsets that they have already paid for. It’s especially concerning that older customers are more likely to be stung by this sharp practice.

“Phone providers must now make sure that any customers staying in a contract past the end of a fixed deal have their monthly bill reduced to reflect the cost of the handset. Providers could make it much easier for consumers to compare prices by separating out the cost of handsets from the cost of services like data and minutes for all contracts, that way it would be much clearer what they’re paying for.”

To be fair to operators our experience is that they usually get in touch towards the end of a contract to dangle further smartphone carrots in a bit to get you to sell your soul for another couple of years. But if they don’t then Citizen’s Advice is right to say there should be an automatic reduction in the bill. That process is presumably so straightforward that it’s hard to give those operators that don’t do it the benefit of the doubt.

Here’s a summary of the findings. Citizen’s Advice offered no explanation of why O2 and the MNVOs weren’t apparently scrutinised. Perhaps they got bored and figured they’d made their point anyway.

Citizens advice operator table