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UK's Ofcom backs 'exit without penalty' plan

Vodafone leads opposition to proposals which would allow customers to break contracts if prices go up


Published: 4 January, 2013

READ MORE: UK | Regulator

The tide is turning against the traditional pattern of heavily subsidized handsets in return for lengthy contract lock-ins. Operators are increasingly trying to reduce their reliance on profit-sapping subsidies and regulators are acting against inflexible mobile deals. The UK's Ofcom is the latest to strike, introducing proposals which would allow consumers to leave their mobile, landline or broadband contract without penalties, should the operator raise prices during the life of the deal.

However, Vodafone is leading opposition to the plan, claiming it would damage the market by pushing the overall cost of contracts up, as well as creating "significant confusion".

The operator said in a statement: "We believe there is work to be done to ensure that customers understand the need for long term contracts and to ensure they are protected during that time, but Ofcom first needs to understand the difference between the prices that are set by mobile phone companies and those which are not." It added: "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 those costs on or they will be subsidizing other companies." For instance, BT might increase the price of

directory enquiry services or premium rate calls.

Vodafone went on: "We will of course be engaging with Ofcom to see how they intend to prevent price gouging by third parties, widespread consumer confusion about prices, and increases in the upfront cost of getting a phone."

Ofcom says the 'exit without penalty' approach is its favorite one for addressing the issue of price hikes during fixed term contracts, but its consultation also considers other alternatives, including an outright ban on price increases during the life of deals. Other options include greater transparency in communicating price hikes to users, but with no change to terms and conditions; and to require consumers to opt-in actively to a variable price deal. The regulator is now inviting comment from stakeholders. The consultation closes on March 14 and Ofcom expects to publish a decision in June.

Under current rules, providers must give one month's notice to contract customers of changes which may cause "material detriment", though this is only vaguely defined. "Many consumers have complained to us that they are not made aware of the potential for price rises in what they believe to be fixed contracts," Claudio Pollack, Ofcom's consumer group director, told TechWorld. "Ofcom is consulting on rules that we propose would give consumers a fair deal in relation to mid-contract price rises."

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