The Competition and Markets Authority (“CMA”) has responded to Ofcom’s consultation on prohibiting inflation-linked telecoms price rises. The consultation was launched last year following Ofcom’s concern that a number of telecoms companies’ contract terms allowed for an annual rise in in-contract customers’ payments which was linked to future inflation, plus an additional percentage. According to Ofcom, these so-called ‘inflation-linked price variation clauses’ not only make it difficult for consumers to know with any certainty what they will be paying through the duration of a contract (making competition less effective), but also require customers to “assume the risk and burden of financial uncertainty from inflation with tangible impacts on their ability to manage costs”. Ofcom therefore proposed a ban on telecoms companies including both inflation-linked price rises and price rises that are set out in percentage terms in their contracts – instead, they are suggesting that where telecom companies contracts allow for a mid-contract price increase, the amount must be set out upfront, in pounds and pence figures.

The CMA agrees with Ofcom that “the existing practice of inflation-linked price variation terms plus an additional percentage is likely to cause consumer harm”, pointing to the complexity of these terms making it harder for consumers to find a better deal, the imposing of unfair financial risks on consumers, and the reduction in the availability of deals with pricing structures that are certain, transparent, and understandable.

While the CMA supports Ofcom’s proposals to prohibit such inflation-linked price variation terms and to require providers to set out price rises in advance in pounds and pence, it makes further suggestions to Ofcom. For example, the CMA encourages Ofcom to consider any further steps that could be taken to make it as easy as possible for consumers to compare the total price of contracts, or to address the difficulty that consumers might still face in understanding the stepped pricing structure of fixed-term contracts. This might include, for example, allowing customers to exit without paying a fee after price rises.

To read the response in full, click here.