New Ofcom rules aimed at stopping inflation-linked rises to broadband, mobile and pay TV bills may lead to customers seeing even bigger rises.
- Mobile, broadband and pay TV companies were previously linking price rises to the rate of inflation+3.9%
- This year, some mobile plans being hiked by over 20%
- 10% increases for some pay TV customers.
Some of the UK’s biggest broadband internet, mobile and pay TV providers are preparing some of the biggest ever price rises this spring, following the introduction of new Ofcom rules which look set to backfire on consumers with new contracts.
Ofcom stepped in after companies including EE, Vodafone and Virgin Media started to introduce mid-contract price rises that were linked to inflation. Most companies used a formula to add 3.9% on top of the inflation figure released in January. When inflation soared in 2022, it led to some customers receiving price rises of nearly 20%.
However, under the new rules, which apply to new contracts, some customers will see price rises of more than triple the rate of inflation. Some mobile deals will increase in price by over 20%, despite the current rate of inflation sitting around 3% (latest figures due to be released on Wednesday 15th).
And it’s users on low incomes, but just above the benefits threshold to qualify for special tariffs, who are set to bear the biggest percentage increases, while customers who can afford expense top-tier packages will enjoy lower proportional increases.
The price rises are due to be implemented this April.
The mobile plan with a 22% increase
Through Uswitch, O2 is offering a 30GB, unlimited minutes and texts for £7.99 a month.
The 12 month contract has a built in price rise in April that will see the price increase by 22.5% to £9.79 a month. Anyone taking up the deal will only pay the advertised rate for under three months.
Under O2’s old price rise formula, customers would have received a rise based on the RPI rate of inflation as announced mid-January, plus 3.9%. Based on the last RPI figure, announced last month (3.6%), the price rise for this deal would have only been 7.5%.
Incidentally, the 22.5% increase here is greater than the 17.3% increase that O2 added to customer’s bills in April 2023 under the old price rise formula at a time when inflation was at a high.
Meanwhile, Three is offering a 60GB deal on a 12 month contract through Uswitch for £10 a month.
Customers on this particular plan will see prices increase by 12.5% in April. Previously Three used a formula based on the CPI measure of inflation, plus 3.9%. Based on the CPI inflation figure published last month – the last currently available inflation figure, customers taking this plan might have seen a 6.5% rise, almost half of the rise that they’ll now pay in April.
Big pay TV and broadband rises
EE will be adding an extra £2 to TV bundles for customers on its new contracts. This means its £20 Entertainment bundle will increase to £22 (or 10%) for affected customers.
Additionally, it will add £3 to broadband contracts, regardless of speed tier. For a customer paying £40, the price rise to £43 is an increase of 7.5%.
Under EE’s old price rise formula of CPI+3.9%, customers might have expected a sub-7% increase in April.
Virgin Media will be adding £3.50 on top of its broadband prices, again regardless of speed tier.
Vodafone is also following suite with similar across the board price rises of £3. For someone paying £30 for a Vodafone home broadband service, the £3 rise is a 10% increase. For someone paying £40, it’s a 7.5% increase.
While the above providers have already announced new price rise formulas for new contacts, other providers will need to confirm their arrangements by Ofcom’s deadline of 17th January. Sky is among those yet to confirm their arrangement. Customers on old contracts may still be subject to old price rise formulas.
Rises will disproportionately affect some users
With the exception of Three mobile, which will be increasing prices based on how much data is included in a plan, other mobile and broadband providers that have announced their new price rise formulas are doing a flat rate increase.
Someone with a provider that’s implementing a £3 flat rate increase will pay that regardless of whether they take a £25 plan or a £75 plan.
This means the percentage increase will be greater for those taking up cheaper packages.
Based on a £3 flat rate increase, a value £25 broadband service increases by 12%. A top tier £75 gigabit connection will increase by just 4%.
But those taking cheaper packages might be poorer households, needing to watch the pennies. The higher percentage price rise will therefore disproportionately affect them.
The good news is that social tariffs provide a safeguard for the poorest, as these tariffs will be exempt from the rises. Ofcom has urged providers to do more to raise awareness of these tariffs.
However, there’s a substantial number of households just above the benefits threshold who won’t qualify. Situated between the poorest who qualify for social tariffs and richer households, they become the financially squeezed middle.
Who is exempt from these changes?
New Ofcom rules apply to new contracts.
If you are still on an old contract, you may still be subject to the old inflation+3.9% price rise formula. If you renew your contract under new terms, you will then move to the new price change regime.
A number of small, independent broadband suppliers and virtual mobile operators (who piggyback off the main mobile networks) will not implement large increases or any mid-contract price rise at all.
And as mentioned above, those on social tariffs will also not see any increases.
What has Ofcom said about the matter?
Ofcom says the new price rise rules that specify that providers state increases in pounds and pence will make it simpler. It says that average prices for broadband and mobile contracts have come down.
As the evidence has shown, simpler pricing doesn’t mean cheaper. And to benefit from lower prices, customers can expect to have to change provider frequently.
Incidentally, 24 month contracts will have two annual price rises baked in. Longer contracts are often sold as being cheaper than shorter contracts. However, the large price in the adverts is far removed from the actual average price because of the two built-in price rises.
By: Marc Thornham | Image: Composite Vodafone/Virgin Media/EE