AVOID BROADBAND ‘LOYALTY TAX’ Turn to p60
Rip-off tricks exposed – beat the price rises
What price loyalty? Offering the best deals to new customers has long been a practice in many industries – not only broadband. But the degree to which loyal customers are being exploited by their internet service providers (ISPS) has reached record levels. Sign up for a broadband contract today and you could end up paying half as much again by the time that deal expires in two years’ time. And don’t expect your broadband provider to warn you of the hike.
According to Citizens Advice figures, customers that don’t change providers or negotiate a new deal once their contract has expired can expect to pay an average of almost £10 a month more for the same service. Over the past six years, ISPS have increasingly looked to attract customers with introductory offers that run for the whole period of the initial 12- or 18-month contract. Between 2011 and 2016 the average value of these discounts rose from 10 to 23 per cent.
However, during this same period the extra amount people were charged once this introductory period expired increased significantly. Citizens Advice’s analysis of the cheapest basic broadband deals from the five largest ISPS finds that prices go up by an average of 43 per cent, or £9.45, a month at the end of the fixed introductory period (see box below). Six years ago customers paid only between £1.58 and £1.84 more a month once their contract expired. A glance at the postcode checker on
www.broadband.co.uk/checker highlights how prices leap once the obligatory lock-in period has ended. Type your postcode, click Search All Broadband Deals, then under the Monthly Cost heading look for the “after 12/18 months” price. In our screenshot above, Sky’s introductory price of £20 a month jumps to £28.99 after 12 months.
Many people hardly ever switch or think to check their fees as long as the service is working. Telecoms regulator Ofcom says it is “acutely aware” that hidden price increases are a major issue.
Why do ISPS employ these tactics?
Given that attracting customers is a costly business in the first place, it seems almost perverse to put up prices at the very point a customer is free to leave. Why take the risk? Put simply, the loyal customers who don’t notice the price rises bump up the Average Revenue Per User (ARPU) figures, which are key to any ISP’S profits.
ISPS assume that dedicated switchers will always move away, and so seek higher margins from subscribers that are either too hooked, too lazy or too busy to bother switching. “They are banking on
people just forgetting about it,” said Edd Dawson, CEO at price-comparison site broadband.co.uk.
Ofcom allows this tactic because ISPS tell customers about the end-of-contract price rise when they sign up, though not always as clearly as they should. Citizens Advice believes the Advertising Standards Authority and Ofcom should force ISPS to be more explicit. It also wants Ofcom to order ISPS to “use timely, smart alerts (such as text messages) to inform customers that they are nearing the end of their minimum contract period and that their tariff is about to rise”.
Ofcom has stepped in, but only after it was apparent customers were already suffering. For example, it stopped companies hiking prices during contracts and charging customers an exit penalty if they tried to switch. The result? ISPS now favour putting prices up at the end of contracts instead. They are still making a decent average revenue per user even during the discounted period, mostly by selling you other services such as higher speeds, TV services and landlines.
As Edd Dawson points out: “They are good at getting value out of customers much earlier than in year three or four – even on a half-price deal they’ll be making a profit on having that customer within the first year”. Services which bundle TV boxes and phone lines with broadband give people a reason to stick with a supplier they might actually resent, creating a false sense of loyalty.
“Broadband is a bit more sticky than energy providers,” said Dan Howdle, broadband analyst at broadband.co.uk. “The difference with broadband is that there are things attached. There’s more likelihood of people being loyal, not through any love of the company, but because they’ve got all their Sky TV channels coming through the service and they have a box with 500 hours of their favourite programs.”
Those hooks are often enough to convince people to turn a blind eye to a £2 price rise here, and £3 a month extra there.
Falling costs, rising prices
What makes the price increases even more galling is that ISPS are actually paying less to use the UK’S broadband network, run by Openreach. According to Ofcom, these costs have fallen by 25 per cent. By contrast, charges imposed on customers have rocketed by 40 per cent.
The major ISPS claim to have added various extra features at no cost, but these are factored into the overall price paid by consumers. “With BT and Sky all the ‘free’ extras have to be paid for somewhere along the line,” said Andrew Ferguson, analyst at Thinkbroadband.com. “All the things like free routers, cloud storage, Wi-fi hotspots and parental controls carry a small incremental cost, plus things like BT consumer call centres moving back to UK and thus higher salaries.”
The main factor pushing up prices is the cost of negotiating for sports-coverage rights. “Before BT came into the market, Sky was the sole realistic bidder for Premier League football,” said Howdle. “If you introduce a new bidder [BT], then the price goes through the ceiling because they’re competing against each other.” Your increased broadband fees are helping to make footballers even richer.
How to get a better deal
ISPS do actually want to retain customers and are often willing to offer cheaper deals as an incentive, but they’re unlikely to do so voluntarily.
Some, such as Talktalk, will keep you on the same price that new customers pay. Others, though, play hardball when you threaten to leave. “Often, they will
call your bluff,” says Dan Howdle. “Anyone doing that should be able to quote a better deal. If there’s a service from Virgin that costs £20 a month less and you get more channels and you have those details, then they know you’re not bluffing.”
Beware, however, that ISPS train people to deal with your haggling. They also know just how attached you are to their services. “Your provider will have a pretty good notion of how you use its services,” Howdle adds. “For example, you’re much less likely to be able to get a better deal from Sky if you’re signed up to all the football and movies, and you use these services constantly – they know they have you hook, line and sinker.”
Deals can change significantly over time, so experts suggest waiting until the market is looking to recruit new subscribers – Sky, for example, occasionally offers a year’s free broadband, but other ISPS will also have cashback deals and free months.