BLIND LOY­ALTY OF THE MONTH

Broad­band providers pun­ish loyal cus­tomers with an, on av­er­age, 43% price rise when they reach the end of their con­tract. Ste­wart Mitchell asks why

PC Pro - - November 2017 Issue 277 -

You could be spend­ing al­most £200 ex­tra per year by blindly stick­ing with your cur­rent broad­band sup­plier. Find out if you’re with one of the worst of­fend­ers in the UK.

What price loy­alty? Of­fer­ing the best deals to new cus­tomers has long been a prac­tice in many sec­tors – not only broad­band – but the de­gree to which loyal cus­tomers are be­ing ex­ploited by their 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, ei­ther.

Ac­cord­ing to Cit­i­zens Ad­vice fig­ures, cus­tomers who 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. “Peo­ple on the cheap­est ba­sic broad­band deals are hit with an av­er­age price rise of £113 a year once their deal ends – with many un­aware they face an in­crease in cost,” the or­gan­i­sa­tion said, adding that over a third are un­aware that their bill will go up.

Cit­i­zens Ad­vice anal­y­sis of the cheap­est ba­sic broad­band deals from the five largest sup­pli­ers finds that prices go up by an av­er­age of 43%, or £9.45 ex­tra a month, at the end of the fixed con­tract pe­riod.

Oth­ers claim the sit­u­a­tion is even more dire for those who stay put. Com­par­i­son site

ca­ble.co.uk, for ex­am­ple, claims users who switch could save £322 a year, on av­er­age, while a glance at the post­code checker on broad­band.co.uk/checker high­lights how prices leap once the oblig­a­tory lock-in pe­riod has ended.

In­formed, se­rial switch­ers can make sav­ings once their con­tract hand­cuffs are un­locked, but many peo­ple hardly ever switch or think to check their fees as long as the ser­vice is work­ing. “The in­creas­ing depth of pro­mo­tional dis­count­ing can re­sult in un­en­gaged con­sumers pay­ing more than those who are en­gaged with the mar­ket and look around for the best deals,” ex­plained tele­coms reg­u­la­tor Of­com, which told

PC Pro it was “acutely aware” that hid­den price in­creases were a ma­jor is­sue.

“The so­phis­ti­cated use of price dis­count­ing may com­pound is­sues around price com­plex­ity,” Of­com ad­mit­ted.

Over the past six years, ISPs have in­creas­ingly looked to at­tract cus­tomers with in­tro­duc­tory of­fers, and now the monthly re­duc­tions ef­fec­tively run for the whole pe­riod of the con­tract – which looks less of an in­tro­duc­tion and more like a bait-and-switch of­fer­ing.

Be­tween Q1 2011 and Q3 2016, the av­er­age value of pro­mo­tional dis­counts rose from 10% to 23%. At the same time, the ex­tra amount peo­ple were charged once their ini­tial con­tract pe­riod ex­pired in­creased sig­nif­i­cantly. In 2011, Cit­i­zens Ad­vice re­search found con­sumers were pay­ing on av­er­age be­tween £1.58 and £1.84 more a month out of con­tract, whereas now the av­er­age price hike is £9.45 per month.

Given that Of­com be­lieves 42% of fixed line and broad­band cus­tomers are out of con­tract and the av­er­age ten­ure is six

ISPs seek higher mar­gins from sub­scribers who are too hooked, too lazy or too busy to bother switch­ing

years, many sub­scribers are pay­ing th­ese higher tar­iffs – re­ferred to in the in­dus­try as “stan­dard vari­able tar­iffs”.

Why ISPs em­ploy th­ese tac­tics

Given that at­tract­ing cus­tomers is costly, it seems al­most per­verse to put prices up when a cus­tomer is free to leave. Why take such a gam­ble? 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 ser­vice provider’s bot­tom line.

ISPs as­sume that ded­i­cated switch­ers will al­ways move away, and so seek higher mar­gins from sub­scribers who are 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. “They don’t usu­ally write a let­ter at the end of your con­tract say­ing: ‘you’re out of con­tract and are go­ing onto a rolling con­tract and the prices are go­ing to go up’.”

It’s a sur­pris­ingly easy tac­tic to em­ploy, and falls within the cur­rent rules for ISP con­duct laid out by Of­com be­cause the price rise was com­mu­ni­cated dur­ing the sign-up process, how­ever obliquely. “They put this in the con­tract up­front, say­ing it’s £20 a month now, but af­ter 12 months it will rise to £26, so they no­tify you at the start and hope you’ll for­get or don’t want to go through the switch­ing process,” said Daw­son.

“You can al­ways find a cheaper deal – and the providers think ‘Well, those peo­ple are go­ing to go any­way – we’ll ac­cept that but we’ll hope that a good per­cent­age of peo­ple will just stay’. Or, more likely, they just for­get – 18 months af­ter sign­ing up, who re­mem­bers what they agreed to?”

ISPs have a his­tory of sail­ing close to the wind with pric­ing and con­tract strate­gies – Of­com has stepped in (of­ten be­lat­edly, af­ter it was ap­par­ent con­sumers were suf­fer­ing) to im­prove con­sumer pro­tec­tion. For ex­am­ple, the reg­u­la­tor stopped com­pa­nies from hik­ing prices dur­ing a con­tract and then try­ing to charge cus­tomers an exit penalty if they ob­jected, and it also stepped in when it be­came com­mon prac­tice to au­to­mat­i­cally re­new fixed-term con­tracts.

Be­cause ISPs are now obliged to in­form cus­tomers and of­fer them the chance to leave if they in­crease prices dur­ing the con­tract, they ap­pear to favour putting prices up at the end. “If you are in con­tract and they put the price up, they have to write you a let­ter and give you the op­por­tu­nity to leave your con­tract early, as BT and Sky have done re­cently,” said Daw­son.

Rather than risk that, com­pa­nies are more likely to wait and hike prices at the end of the con­tract, es­pe­cially be­cause in many cases they are still mak­ing de­cent ARPU even dur­ing the dis­count pe­riod. “The value comes ear­lier than the end of the con­tract and there’s a great deal of up­sell,” said Daw­son. “There’s sell­ing higher speeds, TV ser­vices, and if it’s an Open­reach prod­uct, you need a phone ser­vice. 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.”

Why do peo­ple put up with it?

De­spite the fact that switch­ing broad­band is now gen­er­ally has­sle­free – marginally less so if switch­ing be­tween dif­fer­ent tech­nolo­gies – many peo­ple are still put off by pre­vi­ous ex­pe­ri­ences, when switch­ing could mean days or even weeks with­out broad­band. Bun­dled ser­vices give peo­ple a rea­son to stick with a sup­plier they might re­sent, be­cause the triple- and quad-play pack­ages be­come cen­tral to the home and cre­ate a faux loy­alty. “Broad­band is a bit more sticky than en­ergy providers,” said Dan How­dle, tele­coms an­a­lyst at ca­ble.co.uk. “If you want to switch en­ergy providers, you can go on­line and in about five min­utes you can – it’s one form, it’s in­vis­i­ble.

“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 pro­grammes. If they switch provider, all of that comes down.”

Those hooks are of­ten enough to con­vince peo­ple to turn a blind eye to the £2 price rise here, and the £3 a month ex­tra there. “The com­pa­nies are well aware of this. Once peo­ple are in the door you hook them on BT TV, for ex­am­ple, and be­cause it shows Cham­pi­ons League foot­ball it cre­ates an ar­ti­fi­cial loy­alty be­cause it’s to the equip­ment and not the com­pany as a whole.”

Here’s the le­gal bit

One of the ma­jor crit­i­cisms aimed at ISPs for the out-of­con­tract price rises im­posed on loyal cus­tomers is that they are not made clear enough dur­ing sign-up.

Cit­i­zens Ad­vice has crit­i­cised many of the big sup­pli­ers for fail­ing to in­form cus­tomers of im­pend­ing hikes. While BT men­tions the out-of-con­tract price on its main sign-up page, along­side the ini­tial dis­count prices, al­beit in a smaller font, oth­ers are more ob­tuse. Sky lists the out-of-con­tract tar­iff un­der the sec­tion ti­tled “Here’s the le­gal bit” (one click away from the in-con­tract tar­iff) and in its terms and con­di­tions that are two clicks away. With TalkTalk, the in­for­ma­tion about the price hike from £19.99 a month to £27 is buried four clicks away on the “Buy it now” page.

Cit­i­zens Ad­vice be­lieves this lack of trans­parency is some­thing that the Advertising Stan­dards Au­thor­ity (ASA) and Of­com should re­view. “The ASA should ex­am­ine whether broad­band providers are dis­play­ing pric­ing clearly on web­sites and through advertising, in­clud­ing the costs once the min­i­mum con­tract pe­riod has ended,” the watch­dog said. “The ASA should re­quire providers to clearly state the price of broad­band af­ter the min­i­mum con­tract pe­riod along­side the ini­tial tar­iff.

Cit­i­zens Ad­vice also wants reg­u­la­tor Of­com to make it a re­quire­ment of all 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”.

Fall­ing costs, ris­ing prices

What makes the record price in­creases even more galling is that the whole­sale costs of sup­ply­ing broad­band have fallen markedly. Ac­cord­ing to Of­com, whole­sale phone and broad­band costs – those charged by Open­reach to retail ISPs – have fallen 25% over the past six years. In com­par­i­son, charges im­posed on cus­tomers have gone the other way, ris­ing by 28% and 40% re­spec­tively.

The ma­jor providers all claim to have added var­i­ous ex­tra fea­tures at no cost, but the over­heads are in­evitably fac­tored into the over­all price paid for 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 all carry a small in­cre­men­tal cost, plus things like BT con­sumer call cen­tres mov­ing back to UK and thus higher salaries.”

One fac­tor more than any other also ap­pears to have pushed prices up, es­pe­cially among those ISPs of­fer­ing TV deals: the price of ne­go­ti­at­ing for sports cov­er­age rights.

“Be­fore BT came into the mar­ket, Sky was the sole re­al­is­tic bid­der for Premier League foot­ball,” said How­dle fr0m ca­ble.co.uk. “If you in­tro­duce a new bid­der [such as BT], then the price goes through the ceil­ing be­cause they are com­pet­ing against each other – so the prices have been go­ing up with great fre­quency and that’s based not nec­es­sar­ily on its need to ful­fil obli­ga­tions to cus­tomers or share­hold­ers, but be­cause the ser­vices they are pro­vid­ing are cost­ing them more.”

Your in­creased broad­band fees are help­ing to make foot­ballers even richer. What a re­as­sur­ing thought…

Since BT joined the fight for foot­ball cov­er­age rights, prices have shot up for cus­tomers

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