Broadband, phone and TV companies will have to tell customers when their contract is coming to an end and show them the best deals available, under new rules.
Telecoms regulator Ofcom says that more than 20 million people who pay a “loyalty penalty” once they have passed their initial contract period could benefit by switching provider or agreeing a new deal with their existing one.
Telecoms and pay-TV companies will have to warn customers between 10 and 40 days before their contract comes to an end.
Alerts will be sent by text, email or letter and will include:
- the contract end date
- the price paid before this date
- any changes to the service and price paid at the end of this period
- information about any notice period required to terminate the contract
- the best deals offered by their provider, including the prices are available to new customers
People who choose to stay with their provider without signing up to a new contract will also be sent a reminder every year about their firm’s best deals.
Companies have nine months update their systems and will start sending out notifications from 15 February next year.
Lindsey Fussell, Ofcom’s consumer group director, says: “We’re making sure customers are treated fairly, by making companies give them the information they need, when they need it.
“This will put power in the hands of millions of people who’re paying more than necessary when they’re no longer tied to a contract.”
Research from Citizens Advice found that consumers are being ripped off to the tune of £4.1 billion a year by businesses that take advantage of their loyalty.
The so-called loyalty penalty occurs when customers of a business pay higher costs year-on-year for staying with the same product, while new customers of the same business pay significantly less.
People who bundle their landline and broadband services together pay on average around 20% more when they are out of contract, rising to 26% among customers who bundle their pay-TV with these two services, Ofcom says.
One in seven customers don’t know whether they are still tied to their original deal, while one in eight believe they are “in-contract” but don’t know when this period ends.
However, consumer groups do not think the changes go far enough.
Gillian Guy, chief executive of Citizens Advice, says: “We are encouraged that Ofcom will make companies send a reminder to their customers when their contract is about to end. But, given the scale of the loyalty penalty, this won’t be enough to solve the problem.
“Almost nine in 10 people think that charging loyal customers more is unfair, and we agree.
“The Competition and Markets Authority was clear in its response to our super-complaint that regulators must report on their progress by June. We look forward to hearing about the concrete actions Ofcom will take to end this systematic scam.”