A Call for Change: Ofcom wants to end overpaying for phone contracts

June 26, 2019

2 min read

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What's going on here?

Internet and phone providers will now have to tell users when their contract is nearly over.

What does this mean?

More than 20 million people have been stuck in contracts past the original end date, without realising. This means that consumers often overpay for their phones services because they are unaware of the end date of their contract. However, Ofcom wants to address this. Service providers will now have to communicate to customers 10-40 days before the end of their contract the fact that the contract will come to an end. As well as this, they must include the fact the customer can terminate the contract with no charge and the provider must also present alternative subscriptions. This is intended to end over paying and allow consumers to find the best deal. Companies are expected to begin adopting this practice from 15th of February 2020.

What's the big picture effect?

This change is likely to have huge repercussions for providers’ revenue and profits as customers can typically reduce their deal by around 20% if they negotiate a new contract. There is clearly a huge benefit to consumers who will now be able to gain a much needed “upper hand” over providers in negotiations.  A representative from TalkTalk stated that this is an “overdue step to a fairer market”.

While change seems to be heading in the right direction, some worry that the measures do not go far enough. Previously, the Internet Services Providers’ Association (ISPA) raised concerns about the ability of smaller providers to comply with the new rules due to the “cost and complexity of adapting their systems to meet the rules”. This could potentially lead to a foreclosure of small businesses thereby allowing the bigger companies to develop a monopoly and charge higher prices! The ISPA, in their reply to Ofcom, have also stated that there could be a passing on of the cost of these notifications which makes this new change redundant.

It is uncertain how this change will affect the market. The regulation’s attempt to reward loyal customers, instead of new ones, may give rise to anti-competitive consequences. This is because ISPs would aim to keep customers rather than compete to attract more. Perhaps this change could also lead to some form of collusion between businesses around pricing of tariffs. This would be in order to offset the costs of adopting the new regulation. For now, we will have to wait to see what bigger changes the regulation will bring about.

Report written by Mohammad H

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