Which media providers are leaving you out of pocket?
As consumers, we are conditioned not to believe all that glitters is gold. Instead, we're meant to hone in on deals and products where what you see is what you get. However, it seems one of the most appealing sources of stability can no longer be relied upon to deliver hassle-free dependability - the fixed-term contract.
Measured against pay-as-you-go or variable-rate deals, fixed-term contracts are often the agreement of choice for consumers who want to know what they will be paying and for how long. But in what seems like an ever-growing trend, providers are increasing the cost of fixed-term contracts mid-term - often not giving customers the chance to leave without paying a penalty.
Fixed-term contracts are common in many industries, but it is mobile phone, TV and internet deals that seem to bear the brunt of many of these hikes. And all too often an increase in the price of one affects package and bundle deals, attracting the most public scorn.
Such price hikes are currently at the forefront of consumer issues for several reasons. First, consumer rights group Which? is mid-way through its ‘Fixed Means Fixed" campaign, targeting mid-term hikes. Second, communications regulator Ofcom has launched a consultation into mid-term increases. And last, the past year has seen a veritable bingo card of big company price increases.
Consider mobile phones. Since January last year, Vodafone, O2, 3, T-Mobile and Orange (the latter are now part of EE) have all put up their contract prices. The Fixed Means Fixed campaign, which boasts more than 40,000 supporters, has found mobile phone operators' increases have netted them up to £150 million in extra revenue in the year to November 2012 and that 70% of customers affected were unaware the companies were allowed to increase the cost.
Jamie Rendle, 47, a bus driver from Cardiff, has a TV, broadband and landline package with Sky. Last year, he was one of thousands of customers affected by two price hikes in three months.
"I was extremely angry," he says. "Sky does not have a monopoly on satellite TV, but there's only a limited choice of providers that can offer a similar package."
After the double dose of price hikes, Sky announced it would allow customers to leave contracts without a penalty charge, but Jamie stayed as he thought switching would be too much hassle. "I have the right to leave but I haven't done so yet. Sky knows it does Sky well and I'll get a better rate with a package deal rather than using different providers. It's frustrating. I feel powerless."
Jamie is not alone. When Ofcom began investigating fixed-term contracts, it received more than 1,600 complaints in just nine months. They covered everything from the amount of the increase to the transparency of the contracts. The majority simply cited the principle of hiking costs on a fixed contract as ‘unfair". Ofcom says the complaints cover seven different providers, but would not name them.
So why has there been an increase in fixed-term contract price rises? Ofcom data shows 67% of mobile phone contracts are now for 24 months, when in 2007 it was only 1%. The longer the contract, the more likely a price hike will be mid-term.
"The main driver behind the prevalence for longer contracts has been mobile operators changing their strategies in reaction to slowing growth in total mobile subscribers," says an Ofcom spokesperson.
The spokesperson also said the popularity of smartphones means longer contracts are more likely to deliver a return on the cost of giving customers expensive phones for free. But what really riles consumers is the way price hikes are disguised by small print and terms cloaked in ambiguity - line rental, rising energy costs, inflation are all familiar excuses for rises.
"Nothing stays the same for ever," says Dominic Baliszewski, broadbandchoices.co.uk's telecoms expert. "To be honest, none of the companies will ever state exactly why they are putting up prices but they usually say it is to counteract the normal inflation increases every year. However, there is also a lot of service improvements - fibre broadband roll-up, for example - on the way, so it's not necessarily a case of money for old rope."
As it stands, Ofcom rules say a consumer must prove any change causes ‘material detriment', to which the provider must agree before a resolution can be reached. The problem is that the various providers follow their own guidelines.
After Sky's two increases in three months, a ‘material detriment" argument might well have been successful on a case-by-case basis in a bid to leave your contract but Sky announced it would allow customers to leave without a cancellation charge. Elsewhere, O2's terms and conditions allow its prices to rise every year as long as it is not higher than the RPI rate of inflation, while Vodafone lets customers leave without fee if a mid-term increase means your contract price has risen by more than 10%.
It is clauses such as this Which? is targeting in its campaign. It says customers should not be expected to read all the small print of mobile phone contracts, though you can protect yourself from a shock by reading your contract or checking with your provider. Meanwhile, Ofcom is keen to close this ambiguous loophole and create a simple set of rules that can be enforced.
Similarly, the energy watchdog Ofgem is looking at how to ensure companies put customers on the lowest tariff available. While regulation will put an end to mid-term increases, it could lead to companies finding other ways of increasing costs when they need to.
Undercover footage from Which? found 82% of mobile phone shop assistants gave consumers incorrect information about the potential for price rises on fixed phone contracts. Meera Khanna, spokesperson for Which?, says: "The mobile phone companies must start playing fair with their customers without waiting for the regulator to rewrite the rules."
This year promises to be an important one for contract changes as Ofcom will report back on its consultation in the summer. The regulator has tested the waters with several proposals - the most likely to be implemented being a rule that would allow customers to leave any contract early without penalty if a provider ups the price mid-term.
Only by challenging the providers in a public forum will we be able to deal with the manner in which companies handle price increases and stop them from trying to mislead consumers.
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Sky and Vodafone are both guilty of increasing prices twice since 2011. Sky's price rises were so great they activated a clause in customers' contracts, allowing them to leave midterm without a penalty charge.
Orange boasted the top percentage increase from earlier last year with a 4.3% price hike, but then Virgin Media came along with a 7.8% hike in its line rental this February.
And let's not forget the energy providers that lined up to increase their tariffs in 2012 - though that was not on fixed-term contracts - or the water companies that implemented an above-inflation price hike in February.
Sadly for consumers, it seems most providers are as bad as each other.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).