Opinion Articles

Saturday, January 25, 2014

Ofcom changes the rules for mobile phone contracts... and so does O2

Mark Bridge writes:

This week, new Ofcom rules came into force. They’re designed to avoid unexpected price rises during the minimum term of a mobile phone contract. Yes, just because you signed a fixed-term contract doesn’t mean the charges can’t increase. Networks said they needed this option in case of inflation or regulatory changes. Customers felt trapped.

In response, Ofcom clarified its rules concerning a key phrase: material detriment. You see, customers could leave their contract without penalty if any contract changes involved ‘material detriment’. The problem was the lack of a formal definition. If customers complained - and if that complaint then went to independent adjudication - each side would be battling with dictionaries in their hands.

So Ofcom provided guidance on ‘material detriment’. The original wording - Ofcom’s General Condition 9.6 - went like this:

The Communications Provider shall:

a) give its Subscribers adequate notice not shorter than one month of any modifications likely to be of material detriment to that Subscriber;

b) allow its Subscribers to withdraw from their contract without penalty upon such notice; and

c) at the same time as giving the notice in condition 9.6 (a) above, shall inform the Subscriber of its ability to terminate the contract without penalty if the proposed modification is not acceptable to the Subscriber.

In a nutshell: you’ll get a month’s notice, you’ll be allowed to leave without penalty and you’ll have this all explained to you if any changes are of ‘material detriment’. Yup, there’s that phrase again.

So what did those new rules say?

Ofcom is likely to treat any price increase to the agreed core subscription price during the fixed term of a telecommunications contract as a modification that is of, or is likely to be of, material detriment to consumer and small business subscribers.

Excellent. That’s clear. When you sign a new telecoms contract, any price increase to your monthly subscription charge - what was once called ‘line rental’ - is likely to be of material detriment.

There’s even an example.

The subscriber agrees and enters into a 24-month contract for services on terms that the core subscription price will be £10 per month. The contract also contains a term to the effect that the Communications Provider may increase the agreed core subscription price by up to a certain amount, percentage or index-linked level (such as RPI). Ofcom is likely to treat any exercise of the discretion to increase this agreed price during the fixed minimum term of the contract as a modification meeting GC9.6’s material detriment requirement.

Yay!  Price increases that may (or may not) happen at the discretion of your mobile network are history. Well, okay, not technically ‘history’. This only affects new contracts, although that doesn’t stop it from being seen as a very positive move.

But hang on a moment. Put down your party poppers. There’s another example here.

The subscriber agrees and enters into a 24-month contract on terms that the core subscription price will be £X per month for the first 12-months (or some other period) and £X + £Y (or £X + Y%) for the second 12-months (or some other period). On the basis that the relevant price terms are sufficiently prominent and transparent that the subscriber can properly be said to have agreed on an informed basis, at the point of sale, to the relevant tiered price(s), Ofcom would not regard the application of the agreed price in the second period as a modification of the contract capable of meeting GC9.6's material detriment requirement.

Which means price increases are allowed as long as they’re agreed in advance. These new rules don’t eliminate price increases, just unexpected price increases. If your network says “we’ll be changing our prices every year in line with the Retail Price Index”, Ofcom says that’s fine as long as they made it clear before you signed the contract.

Which is what O2 UK have done.

On its web site is a statement that says “We're adjusting our Pay Monthly airtime tariff prices by 2.7% from the 1 March 2014. This is in line with the current Retail Price Index (RPI) rate of inflation announced on 14 January.”

And they’re ready with a response for the naysayers. In a list of frequently-asked questions is “Are you allowed to put my prices up whilst I’m in contract?  It’s not the price I signed up to.”

The answer, says O2, is “yes”. It points out that customers who signed up before the magic Ofcom date of 23rd January 2014 aren’t subject to these new rules. Its terms and conditions allow it to increase monthly subscription charges by the RPI, which is what it’s done.

A-ha. What about people who’ve joined or upgraded after 23 January 2014, eh?

Pretty much the same. Rather than warning that monthly prices ‘may’ change according to inflation, O2 is now telling new customers that monthly charges ‘will’ change. And by making this a definite annual increase (or an annual decrease if the RPI goes down), it’s completely in line with Ofcom’s guidance.

Perhaps not what consumers expected when Ofcom made it’s statement about mid-contract increases - but at least it’s clear.

Already Three UK has distanced itself from this kind of contract condition, issuing a statement that says “Your fixed monthly recurring fee from Three will not go up in the minimum term of your contract. We support Ofcom’s approach to fixing the price for pay monthly contracts for their duration. We think it’s only fair that customers should have clarity around costs when they sign up to a contract.”

The question now is whether O2’s move will be followed by other networks… or whether Three’s example will be their inspiration.

[Ofcom guidance (pdf)]

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Author: The Fonecast
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7 comments on article "Ofcom changes the rules for mobile phone contracts... and so does O2"

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1/27/2014 8:43 AM

So what about all other prices, such as calls or roaming (not in europe) or admin charges etc etc etc?

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1/28/2014 7:07 PM

Its just rip off Britain again isn't it !!

You would have thought a contract would stay the same for the the term nobody reads the tiny grey small print and even if they did unless you know the clever legal wording you wouldnt understand it anyway.

Might only be penny's to our bill but ends up millions to them and the reception is still poor in many areas .

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1/29/2014 4:00 AM

I have been with o2 for over 4 years and this is the second price increase in 10 months, last one being March last year. I have spoken to o2 and have been told to send any email to complaintreviewservice@o2.com. I have request my contract be cancelled with immediate affect and I will not be paying any penalties. I was never informed that I would be subjected to an increase. I should hear from them tomorrow

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1/30/2014 9:12 PM

Same here Barry ive been a customer for 10 years, my phone is also on the blink and they have told me i cant cancel and will have to pay penalties if i do. Have you heard from them?u2aqd

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1/29/2014 6:55 AM

Guess who I won't be renewing my contract with!

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Ms R

3/28/2014 8:41 AM

absolutely disgusting, this is the second pay increase I have had with o2

a £28.00 contract first signed is on its second increase to £32.47

greedy pigs!

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8/21/2015 2:34 PM

my mobile network which is virgin is trying to do they same to me although I have explained and provided prove to them that my contract does not have the small print that says ''prices are subject to change''. Therefore, I was not pre-warned or foretold of any expectations of future price changes. But virgin is telling me that the terms and conditions of my contract is ''IRRELEVANT''. I have told them that if the terms and conditions of my contract is irrelevant then I will pay any amount I want as my bill. Can anyone advice because I want to take my case further.

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