Customers signing up on a new deal may find they only pay the offer price for a few months, before an in-built inflation-busting price rise is triggered.
Originally, mid-contract price rises allowed customers to terminate their contact and move elsewhere. But to get around Ofcom rules, most providers now include a clause allowing them to increase prices during the contract term. The price increase is linked to a set formula. Often, this is the rate of inflation, plus an additional percentage increase.
The Bank of England is forecasting inflation to continue to exceed 5% in the new year, potentially hitting 6%. Most providers calculate annual price rises based on inflation rates published during the first months of the year. Each company has its own distinct formula, either using CPI or RPI rates. When inflation was low, many companies added an additional percentage to the rate of inflation to guarantee a price rise of at least 5%. These price rise formulas remain embedded in contracts despite the rise in inflation.
This means some customers could face increases of nearly 10% during the spring, which is when the majority of providers choose to increase prices.
As a result, a customer signing up to a new deal this month could be just three months away from a price rise. In the case of an 18 or 24 month contract, only three of those months will be at the original deal price. A further price rise would take place in 15 months.
What should you look out for?
When signing up for a new pay TV or broadband service, look out for the small print in the advertising stating that ‘prices may go up during your contract’.
The small print should also reveal any formula used to increase prices. For example, companies may state that an annual price rise is linked to either RPI or CPI rate of inflation. The company may add a further increase on top of inflation. This may be expressed as e.g. “RPI+3.9%”.
What is RPI and CPI inflation?
There are two different ways to measure inflation. The Retail Price Index (RPI) tends to produce the highest percentage increases. As a result, a number of telecoms companies like to use this measure. The Consumer Price Index (CPI) is normally slightly lower in percentage terms. As a result, Governments like to link benefit and pension increases to CPI.
How to avoid price rises
Review what you actually need from a pay TV or broadband provider. Which channels do you watch? Can you access your favourites shows on a standalone streaming service instead of a pay TV bundle? Streaming services can generally be stopped and started throughout the year. This means you don’t have to pay for them all year round when you’re not using them.
Are there any extras that perhaps have been added in the past, e.g. as part of a previous retention deal, that you don’t need / are not using? Do a price comparison. Sometimes companies that offer great introductory deals may not be the cheapest in the long-run, especially if you’re tied to an 18 or 24 month contract.