Business ofcom Regs

Mid Term Price Rises

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.


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.


Peter Farmer

By Peter Farmer

Peter Farmer is the Commercial and Regulatory Manager at Gamma, writing here on Trefor.Net in a personal capacity. He sits with Tref on the Internet Telephony Service Providers' Association Council and is their Chair of the Regulatory Affairs Committee.

Peter's experience covers consultation responses and disputes with Ofcom, lobbying government (UK and European) on telecommunications matters, litigations at the Competition Appeal Tribunal, Court of Appeal and Supreme Court. Despite all of that, and having three Masters degrees, his main job is actually being a Personal Assistant to his two cats.

11 replies on “Mid Term Price Rises”

It’s interesting as I think fixed term and initial period have become interchangeable terms despite there being a key difference – an offense of which I am guilty in this piece.

The vast majority of contracts are the initial term variety, but true fixed term exist for example major sporting events whereby a communications provider scales up and back for it as part of a package.

PS Cheers Tref

EE are a bunch of deceitful crooks id love to get out of my contracts.
So basically if they up my price plan I can get out of the contract with no ‘end early’ fees?

Hi Willy

If you signed after 23rd January 2014 and they put your “bundle” up, then yes.

If you signed before then, only if the price rise is “materially detrimental”. They’ve defined it as more than RPI….. Ofcom haven’t taken a overt formal position, but I’ve been debating it with them for the last few days and am going to do an update to this post this week with their answer (not good news for us like-minded militants!)

I took out an Orange contract through E2Save and on the order there was not any reference to Terms and Conditions other than the price plan of £31.00pm and for a period of 24months.
I seem to remember that relatively recently there was a ruling made to the effect that if there is/was any possibility that there could be a price increase during the period of the contract then this has to mentioned at the point of sale for the increase to be enforceable.
I contacted Orange/EE this morning and after being put through to a supervisor and again stressing that the condition in their contract regarding price increases was not applicable to me because I had not been made aware of it before I placed my order was told that Orange do have fixed term contracts and that he would see if this could be applied to my account to avoid any price increase.
I will keep this site informed of the outcome.

Further to my post of yesterday needless to say The supervisor who told me he would call me within 24 hours did not. I therefore called Orange again and again asked to be connected to a supervisor who patently either did not know what he was talking about or was deliberately attempting to mislead me. He insisted that Orange were not voluntarily putting their prices up but we’re being made to by The RPI! I tongue in cheek asked him for the address of The RPI in order that I could contact them. I tried explaining to him that there was not such an organisation but that it was actually a figure of inflation published monthly. He then told me that I was the one who did not know what I was talking about. I then asked him for his name at which point he hung up. Obviously Orange’s idea of quality service.
I naturally telephoned back but this time after explaining the situation and the agent checking the notes but without any need to ask to speak to a supervisor I was offered a change in tariff with exactly the same allowances and without any extension of my agreement but with a £3.01 reduction in monthly cost and without any future price increase as detailed in the letter I received yesterday. So apparently from Tuesday next I will be being billed £27.99 per month as opposed to £31.00 per month with the threatened increase in line with RPI. An almost 10% reduction instead of an increase.
Whilst Orange are not alone in what I consider to be this most underhanded practice of relying on T & Cs that they know 99.99% of it’s customers have neither read nor appreciated I for one will most definitely not be renewing this agreement on it’s expiry next February.

As a more general point, the General Conditions of Entitlement require E2Save to make certain things clear at the point of sale;

It’s GC9 and starts at page 18

Pretty sure from what you’ve described, there is a likely breach here and one that Ofcom’s consumer team may be interestest in.

Also, I am splitting my sides at The RPI. Perhaps we should start a Twitter campaign against this dastardly institution!

It occurs to me that and as far as I can see it is only contracts that are having this price increase. Surely if Orange are to be believed then their operating costs have also risen for PAYG customers but strangely the rates here have not altered. (This would because of there not being a monthly charge require a reduction in minutes per unit or an increase in the unit cost). Is it because not being under contract one would be able to immediately cease dealing with Orange or at least when your credit was used without penalty? This presumably would not be in the best interest of Orange. So perhaps the contract customers are effectively partially subsidising the PAYG customers – gives you a little glow somewhere perhaps to know that you helping others. I feel that this is another example of a firm taking advantage of their “loyal and existing” customer base whilst promising the moon to new customers.

Two members of my family just received letters from EE informing them that “We are writing to confirm the details of the RPI price change to your monthly plan, which will take effect from 28th May”, and “RPI (Retail Price Index) is a measure of inflation, which directly affects the cost to run our service”.

First of all, RPI is no longer published as a national statistic and is considered by the government not to be a true representation of inflation, hence they have adopted CPI as the measure. The Bank of England has used a 2% CPI inflation target since 2003.
The main difference with CPI is that it is calculated differently to reflect the ability of purchasers to choose to buy less of things which are more expensive.

Secondly, EE is a business, it does not pay retail prices or consumer prices, and doesn’t even have to shop in the UK, plus I’m willing to be they don’t give their staff RPI linked pay rises.

So I’m saying this statement is misleading because it implies that “the RPI price change to your monthly plan” is written in to the contract, and it says that inflation as measured by RPI directly affects their costs which it doesn’t.

Is this materially detrimental – well of course it is, especially if you’re on a pension, which at best will increase with CPI, not RPI. If you’re on a salary, the chances are you won’t even get a CPI inflation increase.
It can only be non-detrimental if you have the right to opt out.

They claim their costs have increased, driven by inflation, therefore they have to put prices up, but this is contradicted by their own recently published accounts which seem to me to prove that their profit margin increased by more than inflation.

Maybe my family members don’t feel up to challenging this, but that doesn’t mean they will get away with it.
As it happens my contract (with a competitor) is up for renewal right now, but I won’t be going with EE unless they back down, and quickly.
So for my family at least, this will cost them substantially more than any gain they might have made.

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