The implementation date of Ofcom’s recent foray into mid-term price rises has now been and gone.

If you were the recently discovered Pacific castaway, then, briefly, Ofcom were concerned that Communications Providers were advertising fixed term contracts at a price and then increasing that price during the contract

This went through one stage of Ofcom intervention, when they introduced (via General Condition of Entitlement 9) the “materially detrimental” test. Which was to say that if an Communications Provider during a fixed term, to a domestic consumer or a small business (the usual sub-10 employee rule) made materially detrimental changes to the terms, the contracted party could have a penalty free exit from the contract.

Don’t ask me what materially detrimental meant. I once spent 40 minutes on the phone with EE arguing that an RPI increase they levied a couple years ago was in breach of this and was demanding a penalty free exit without much luck.

And therein lies the problem. No-one defined what would trigger this. Certain Communications Providers carried on with their interpretation of RPI bring OK….. and carried on angering consumers and consumer groups alike. That said, I am grateful from the text from EE putting my prices up (again) last year because it prompted me to upgrade (I’d been putting it off for a few months).

So, Ofcom intervened again. Their first proposal was that in any fixed term no prices can change. That would’ve included international direct dial rates – and we are all familiar with various nefarious foreign regimes that spike their termination rates when short of hard currency. Directory Enquiries were included too – we all know how their pricing flies around like a flock of birds. How would we have dealt with South Sudan having sovereignty over its own termination rate when it split from Sudan but didn’t get its own dialing code for a few months? What about when a network moves an 09 number from 50 pence per minute to £1.50 per minute? What about the massive shocks that Ofcom and/or the legal system above it sometimes implement?

In short, this was going to end badly. The only way this could’ve been viable is if the Communications Providers added such a risk premium to their prices to cater for all of this that every consumer would’ve endured immediate and substantial inflation in their telecommunications costs (it’s the same principle that leads to a fixed rate mortgage being higher than a variable rate mortgage). In other words, the medicine was far worse than the disease.

What we have now is a middle road, where the “core bundle” for new contracts has to be fixed; i.e. if you say “Shiny new phone, unlimited minutes and texts and 1 gigabyte of data for £12.99 a month, on a two year term” that’s what you have to deliver for two years. If you change the price, or reduce the contents, it will be deemed immediately materially detrimental and trigger a penalty free exit. No allowance for inflation, no allowance for regulatory intervention, you live and die by the terms you offered at point of sale for that bundle save for a change in VAT. Thankfully though, Directory Enquiries and International calls and anything outside that bundle can vary to your heart’s content (subject to a material detriment test….. just one that isn’t automatically met with a price change).

All pretty clear? Well, apparently not if you are EE, who sent all their existing customers this link by text this week and are seemingly inviting trouble; they are staying by the RPI argument unless you’ve got a really shiny new phone after 23rd January 2014 (whereby I assume they’ve followed Ofcom’s rules to the letter).

I sincerely hope EE try and increase my bundle price before my next renewal; because whilst Ofcom have made it clear (well, as clear as Ofcom do) that the formal guidance only applies to new contracts, the approach they have taken is to define what they consider to be materially detrimental. The actual test of consumer harm hasn’t changed, Ofcom have now merely articulated the threshold. If any change to a core bundle in a contract entered into on 24th January 2014 exceeds this threshold, then there’s a very strong argument that it also exceeded the threshold in a contract entered into on 22nd January 2014.

And it is for Ofcom (or more probably for a consumer complaint, Ombundsman Services or CISAS) to determine whether a change is “materially detrimental” on any complaint brought to it; it’s ripe for a test case when the first price change lands.

The only trouble is that this new/existing contract “loophole” is not going to be widely understood or tolerated by the public in the face of the various press releases on the matter, so I suspect the reality is that through misconception many Communications Providers may have no choice but to “comply” with the new guidance for old contracts to avoid customer service and PR issues.

** STOP PRESS **

During the drafting of this post, and later on, I was debating the interpretation with Ofcom. Obviously they are never definitive about the future and as I say above they would formally reserve judgment for each and every case brought before it, but it is “likely” they would consider increases for the core bundle services in the old contracts mentioned above RPI as being materially detrimental and that under or at RPI, well, they would probably look at the Unfair Terms in Consumer Regulations 1999 where absent anything else (such as their new intervention for new contacts) which would suggest it isn’t materially detrimental. So, EE has a fairly good defensive position…… I just wonder how many people will try it when the inevitable happens.

Google+ Peter Farmer