Failure to effectively regulate internet pricing risks increasing digital exclusion

Lyndsey Burton, chief executive of UK consumer price comparison site To choose, examines the implications of rising internet prices in and how social tariffs could be used more effectively to tackle digital exclusion.

Broadband and mobile phone bills are set to rise in the UK by as much as 10% or more by April, at a time when COVID-19 has both increased our reliance on broadband and mobile phones, as well as promoting more online services.

Around 19 million broadband customers will see their prices increase by 9.1-9.3%, and many of the 72 million contracted mobile customers will see increases of between 7.5% and 11.4%+. Indeed, suppliers are increasingly adding price increases above inflation to their contracts, which means that bills will increase even when customers cannot switch suppliers.

Along with projected increases in inflation due to rising energy and fuel costs, this is a huge increase that is expected to push millions into financial hardship and potential disconnection. Choose.co.uk conducted a survey in January which revealed that more than one in 10 people (11%) said they would not be able to afford the next above-inflation price hikes on their broadband and/or mobile phone bills. Tesco-Mobile, a fixed-price provider, showed similar results in early 2021, with 14% of people worried about facing disconnection due to arrears. Full Fiber Broadband Provider Hyperoptic also discovered more recently that 48% of people would not have signed their contract if they had known about the price increases.

Ofcom to research, conducted during the first year of the COVID-19 pandemic, found that 19% of customers experienced an accessibility issue with broadband or mobile; 11% had to change their plan or rate to make it affordable; 5% reduction in food and clothing expenses to stay connected; and 4% canceled a telecommunications service due to affordability. It was 2020 – a time when inflation was Less than 1%.

The price increases set to come into effect in the coming months are a clear indication of Ofcom’s failure to protect consumers from the ‘material harm’ they are supposed to regulate against. In 2016Ofcom ruled that suppliers were no longer allowed to raise prices during the course of a contract without also allowing a customer to circumvent that contract, without penalty, if they wished or wanted to.

Yet despite this, eight fixed broadband providers added annual price increases above inflation to their contracts in 2021, with two providers already doing so. As these increases are written into the terms and conditions of the contract, Ofcom’s rules do not apply. This means customers have no choice but to pay the raise or pay a fee to leave.

Absence of regulation around social tariffs

In addition to this loophole in Ofcom’s regulations on mid-contract price increases, another problem will soon come to light: a lack of regulation around social tariffs. Ofcom’s research during the pandemic also highlighted specific groups that were most at risk of going offline. This included 38% currently unemployed and looking for work; 27% on the lowest household income bracket; and 25% receiving at least one benefit.

While not surprising in itself, it underscores the need for social tariffs, as these are the groups of people who would be eligible. However, there are only four social broadband tariffs available in the UK right now, and they’re not always easy to get to. At Choose, we have understood from many people who find it difficult to access these social rates, with issues ranging from uninformed customer service staff, convoluted application processes, lengthy responses, and the need to be an existing customer (on a standard rate) to apply.

The four social broadband rates currently available are provided by BT, Hyperoptic, KCOM and Virgin Media. Prices range from £15 to £20 per month and may or may not include a phone line. Eligibility criteria also vary from provider to provider. There are several changes that I believe need to be implemented to reduce digital exclusion:

  • Increase eligibility criteria and ensure eligibility is consistent across providers and therefore clear to the consumer.
  • Access to social tariffs needs to be improved, removing any limitation that consumers must be existing customers of the supplier. This is a requirement that simply acts as a barrier to prevent people from requesting and using these rates when needed.
  • Prices should be rationalized or capped for all providers to ensure that those who need it are not unfairly penalized by the networks available where they live. And to ensure inclusion, despite less usage, phone lines should also be provided as standard or at least optional by all providers, which is currently not the case.
  • Awareness also needs to be improved, both with consumers and internal staff, to ensure that the correct information is provided to applicants. This is something Ofcom already agrees with, as they themselves have pointed out “uptake of these products is currently low, partly due to the low levels of promotion of these tariffs by suppliers”.

While in the future Ofcom plan to monitor the situation and believe that there might be good reason to explore whether regulated social tariffs would be necessary, unfortunately they do not have the power to introduce them without being directly approached by the government. An additional problem is the speed at which regulatory changes are implemented, often only years after they have become necessary, as we have seen in the energy market with Ofgem.

As 2022 continues, the financial hardship of the cost of living crisis will see more people go offline and suffer digital exclusion unless more is done to preserve the consistency, availability and awareness of social tariffs to ensure people stay connected.

This article represents the author’s point of view and not the position of the [email protected] blog, nor of the London School of Economics and Political Science.

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