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Original news

Telecoms companies to alert customers of crucial contract information and best deals under new rules, LNB News 15/05/2019 18

Under new Ofcom rules, broadband, TV, mobile and home phone companies will be forced to notify their customers of important information concerning the end of their current contracts and the best available deals that those companies offer to enable customers to agree to deals that best suit their needs and budgets. Under its Fairness for Customers programme, Ofcom looks to help the more than 20 million customers who have exceeded their initial contract period and could be paying more than is necessary.

What are the new rules which will be introduced?

The new rules, which will come in to force on 15 February 2020, represent a move by Ofcom towards greater consumer protection. Mobile phone, landline, broadband and TV providers will be required to inform customers when their fixed-term contracts are coming to an end ten–40 days prior to the contract expiry date. Providers must also give consumers details of their best available tariffs. The new rules will benefit both businesses and individuals.

The new requirements form part of Ofcom’s ‘Fairness for Customers’ programme, which has already seen improvements to the information available to broadband customers about their internet speed, as well as automatic compensation when things go wrong for broadband and landline customers.

The new rules will help start to bring UK regulation in line with Directive (EU) 2018/1972 (the European Electronic Communications Code (the Code))—the provisions of which EU Member States have until December 2020 to implement. Ofcom’s new rules reflect the requirements of Article 105(3) of the Code.

Ofcom has publicly stated that it has decided not to wait until the outcome of Brexit and will introduce these news rules on the basis that if a deal is reached, the UK would need to continue to comply with EU legislation during any implementation period and the government has in any event indicated that it would be minded to implement the Code regardless of Brexit.

What impact will they have on telecommunications providers and the industry generally?

The changes are likely to result in fairly significant implementation costs for telecoms and TV companies, as well as the ongoing costs of managing the notification process. Telecoms and TV providers will have to make changes to their internal processes to ensure that the notification requirements are managed in practice and that deadlines are not missed.

This move by Ofcom will result in change for the industry but will bring the level of consumer protection into closer alignment with other sectors. For example, in the energy sector, Ofgem implemented a series of reforms in 2013 to improve consumer protection, including a requirement for energy providers to give consumers at least 42 days’ warning that their fixed contract is coming to an end and a restriction on providers increasing prices during fixed term contracts.

The insurance sector also underwent change in favour of consumer protection upon the passing of the Consumer Rights Act 2015, which among other things granted greater enforcement powers to the Financial Conduct Authority and the Competition and Markets Authority to maintain the interests of consumers.

How can telecommunications providers prepare for these changes?

Telecoms and TV providers have been given just under nine months to prepare for the implementation of these rules on 15 February 2020. In order to meet this deadline, providers should consider the following practical points:

• what communication method will be most appropriate and cost-effective to send the notifications—providers have flexibility to decide whether to use email, letter or SMS
• how can company processes/infrastructure be adapted to accommodate the new rules, eg are there existing automatic customer communications that could be updated to include the new notification information
• preparing template notifications for individual consumers that can be easily adapted. Ofcom has not provided any prescribed wording, but as well as notifying individuals of the date on which their fixed commitment period will end and the best tariff options available going forward, the notification must also include details of the following:
  • the current contractual price paid, and services provided
  • any changes to the price and service following the expiry of the contractual period
  • any applicable notice period
  • details of other contracts taken with the provider and the contractual expiry dates of the same
  • whether there are early termination charges
  • the options available to the consumer, and
  • how to terminate the contract
• business customers must simply be informed of the best tariff options, the date on which their fixed contract ends and how they can terminate their contract
• establishing a system to easily identify the best tariff options for consumers—this could necessitate adaptations to existing systems, or the creation of new systems to help providers comply with the new rules
• setting up an efficient way of recording all notifications sent and retaining this information for a period of 12 months from the date sent, as required by the rules. Subsequent annual notifications must be sent to consumers who remain out of contract
• if providers require further information or notification templates they can consult Ofcom’s statement

What are the penalties for non-compliance?

Ofcom’s statement does not explicitly refer to how it will address non-compliance by telecoms providers. However, as the rules amount to regulatory requirements, it is likely that Ofcom can take enforcement action as it can do for any breach of its regulations and may also be entitled to impose penalties on providers in line with Ofcom’s Penalty Guidelines.

What impact will the changes have on consumers?

Under current industry practice, following the end of the contract period (which is typically between 12–24 months) consumers who do not switch tariffs may be unaware that they are missing out on better deals or are experiencing automatic changes to their services. According to Ofcom, more than 20 million customers have gone beyond their initial contract period. Customers who bundle their landline and broadband services together pay around 20% more following contract expiry and 26% more when their services package also includes TV services if they fail to switch.

The changes are intended to avoid consumers paying more than is necessary and should help reduce the time and effort spent by consumers searching for the best deal. The risk of providers raising contract prices to offset any losses brought about by the new rules may well be prevented by greater competition in the market as a result of improved consumer engagement.