Mobile f irms ‘used loophole’ to hike up prices mid-contract
MOBILE phone and broadband firms have been accused of using a loophole to ramp up prices by almost double the rate of inflation.
An investigation by The Mail on Sunday has found providers have used a gap in the rules to push up bills. Measures that came into effect in 2014 were intended to allow customers to leave a contract without penalty if they suffer what was described as ‘material detriment’.
The phrase was widely understood to refer to any sort of price increases, but an apparent oversight meant it was never properly defined in the revised rules.
Documents unearthed by the MoS show several suppliers argued in submissions to the industry regulator Ofcom that ‘material detriment’ should not apply if customers were told when they signed a contract that the price could rise. Unless they were given this concession, they insisted, they would have to impose higher initial charges.
It was hoped that the loophole would be seldom used and some companies, including Vodafone, pledged not to use it at all. However, the floodgates opened when O2 and EE began increasing prices on contracted customers.
An analysis by this newspaper and cost-of-living champion Nous. co shows almost all major mobile phone and broadband providers have introduced rises 3.9 per cent above the rate of inflation.
O2 and Virgin Mobile add the 3.9 per cent to the higher Retail Price Index (RPI), while EE, Vodafone and BT Mobile along with broadband providers BT, Plusnet and TalkTalk put it on top of the lower Consumer Price Index (CPI) measure.
Rises typically hit in April and are based on the inflation rates in January or February of each year. It is estimated that more than 20 million households are trapped by exit fees and above-inflation price hikes as a result. The current RPI rate is 9.8 per cent and the CPI is 6.2 per cent. The practice means, for example, that with O2 increasing its charges this year by 11.7 per cent, a £35-amonth calls, texts and data package will rise by almost £50 a year. To escape the additional cost, a customer would have to pay off the rest of their contract.
Retired teachers June and Richard Nunn, both 70, cancelled their fixed deal with Sky TV when prices rose. ‘What’s the point of a contract when the provider can change it without you signing up to something new?’ said Mrs Nunn, from Wandsworth, South-west London.
Greg Marsh, chief executive of Nous.co, said: ‘This loophole seems a bit like the police saying it is legal to burgle someone’s house if you pre-warn them.’
A spokesman for Virgin Media O2 said: ‘This price increase will fuel further investment in our network and services.’ Vodafone said: ‘We set out our pricing clearly at the point of sale, in line with the latest Ofcom guidance.’
BT Mobile, EE, BT and Plusnet, all part of the BT Group, and TalkTalk said they adhered to Ofcom rules. A spokesman for Sky, which also owns NOW, said: ‘We aim to keep prices as low as possible while still delivering content customers love.’
A spokesman for Ofcom said: ‘We’re strengthening our rules so from next month customers will get a simple example of how monthly prices will increase over the course of the contract before they sign up.’
‘What’s the point of a contract if it can change?’