Operators push for clarity to avoid contract changes

Operators push for clarity to avoid contract changes
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Operators will push for providing greater clarity in contract pricing in a bid to avoid consumers walking away from monthly deals following mid-contract price rises.

Regulator Ofcom has outlined its proposals to deal with the emotive issue of mid-contract rises. Each of the main four operators has implemented price increases during the past 12 months, because of rising costs. However, consumers have been left angry by the changes and complained to Ofcom in their hundreds.

The regulator is proposing four possible solutions including: have operators be ‘clear and upfront’ about the potential for price increases; make consumers ‘opt-in’ to any potential changes to their contracts; or maintain the status quo. However, it is the fourth option, which could see consumers being allowed to walk away from contracts if any mid-contract rise is implemented, that operators are most keen to avoid.

Vodafone was the only operator prepared to go on record about the proposals, although rivals were privately sympathetic about its criticisms. The operator said the proposals risked confusing consumers and ‘potentially’ increasing the cost of getting a mobile phone contract.

A spokesman said: ‘We simply do not control many of the charges faced by consumers. They are set by third parties, and mobile phone companies have to pass on those costs or they will be subsidising other companies.’Rivals said they would be co-operating with Ofcom’s consultation, which will close in March. The regulator will report on its findings by June.

ANALYSIS - A risky balancing act

Ofcom’s suggestion that consumers could walk away with a smartphone worth several hundred pounds if their operator raises its prices midway through the contract could not have come at a worse time for telecoms companies.

Revenues are being battered by a weak economy, the rise of over-the-top players and changes to mobile termination rates. As we are frequently reminded, the UK is one of the most aggressive telecoms markets. While 4G is seen as a means of reversing falling sales, competition between rivals may well cancel out initial attempts to increase ARPU by more costly monthly contracts.

Operators are in a bit of a bind as they have to deal with the conflicting problems of keeping churn low and not driving their customers to their rivals, but doing so while maintaining the bottom line sufficiently to drive investment.

Privately, operators are reacting with horror at the nightmare scenario – that a consumer could walk away with an iPhone 5 or Samsung Galaxy S III because an operator imposes a mid-contract rise. If Ofcom was to allow consumers to end their contract in this way, it seems likely that the way consumers buy high-end mobile phones in the UK would change. Instead, operators are suggesting that greater clarity at point of sale is the likeliest compromise. Consumers would be told of the likelihood of price rises during the course of their contract.

Mid-contract price rises are an emotive issue for consumers, regardless of how much notice you give them. It’s not pretty but operators argue that they cannot be expected to swallow the cost of inflation or rising charges. It’s unlikely to placate cash-strapped consumers but seems the least damaging option. How operators justify these extra charges will be seen as an additional challenge in an already difficult market.

Author: Graeme Neill

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