Competition Complaint Investigates the High Price of Provider Loyalty

The UK Competition and Markets Authority has opened a “super-complaint” into broadband ISPs, mobile and financial (savings etc.) providers, which will examine how consumers who remain loyal (e.g. stay with the service at the end of their contract) can end up paying “significantly more” than new customers.

According to Citizens Advice, which tabled the complaint, customers who stay loyal to their providers are losing out on over £4.1 billion a year. “It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal. The CMA should come up with concrete measures to end this systematic scam,” said the organisation’s CEO, Gillian Guy.

In fairness much of the problem being highlighted stems from the common culture of discounting and how those are promoted or perceived by consumers. Providers often offer big discounts to new customers, which can last as long as the first contract term (up to 24 months) before coming to an end. Once the discount is over then the price returns to its “normal” level and this tends to be significantly more expensive.

At this point the customer is likely to discover that they cannot simply re-contract with their provider in order benefit from the same discounts as new subscribers, instead you end up paying a much higher price. Meanwhile a savvy consumer may contact their provider in an attempt to haggle for a lower price (see our ‘Retentions Tips‘ article) or switch to a different ISP, but only around 10%+ of broadband users actually do this each year.

Daniel Gordon, Senior Director at the CMA, said:

“We will now carefully consider the concerns raised by Citizens Advice, and any further evidence on this issue. Our response will set out the CMA’s views on this important issue and any next steps we think are needed to make sure businesses don’t take unfair advantage of their long-standing customers.”

Aggressive discounts are a natural product of any competitive commercial market and no doubt providers will argue that consumers, as stated above, do have alternative options should they seek to pursue them (e.g. switch provider or haggler for a lower price).

Vibrant competition also means that not all companies follow the same approach. For example, most of the smaller broadband ISPs offer a single price and stick to it, which can initially make them seem more expensive but less so if you plan on staying loyal (i.e. the pricing evens out). Similarly some of the biggest ISPs, such as TalkTalk, do allow you to re-contract and at the same time benefit from discounts.

On the other hand the CMA notes that their complaint will focus on “vulnerable consumers,” such as those on low incomes, older people, people with health problems and those with lower levels of formal education. On this point it’s often the case that such people, particularly pensioners, often don’t even bother to hunt for a better deal or wouldn’t know where to start if they did.

CMA Statement

The CMA will now consider the concerns raised, and what should be done about them. This will include engagement with relevant regulators such as the FCA and Ofcom.

It will publish a response within 90 days and possible outcomes include:

* making recommendations to government to change legislation.
* action by sectoral regulators.
* taking competition or consumer enforcement action.
* launching a market investigation or market study.
* deciding there is no action required.

This list is not exhaustive and there could be more than one outcome depending on the results of the investigation.

A precedent of sorts has already been set. Earlier this year Ofcom nudged BT to slash the cost of phone line rental by £7 to those customers who only took a phone service (here), which mostly affected pensioners. However that was a particularly targeted remedy and prescribing a similar approach across the whole sector, for different services, is probably too invasive for the CMA to propose.

At the very least we would hope that the CMA moves to require greater transparency of pricing by providers. Even today there are still providers that will only promote the discount price on their package, which often consigns their more expensive post-contract pricing to the small print or final order page and some don’t even state it at all!

Forcing providers to clarify their post-contract pricing on packages would certainly make it a lot easier for consumers to compare providers by their true cost(s). Many providers are already doing this but not all. However the CMA will need to be careful that they don’t force any counter-productive changes, such as those that could result in everybody having to pay a higher price.

UPDATE 10:20am

Added a statement from the UK Internet Service Providers Association (ISPA).

Statement by the ISPA:

ISPA fully supports efforts to encourage customers to engage with the market, and there is, naturally, a clear need to engage with vulnerable customers to provide support and help with switching. ISPA members are working hard to ensure that appropriate help is offered and we support Ofcom’s consultation on the introduction of end of contract notifications which will further enhance consumer engagement.

With a consultation ongoing, we feel that Citizen Advice is jumping the gun in relation to the broadband market and we are concerned that the narrative of a “loyalty penalty” conflates customer loyalty with ill-informed or unengaged customers. Loyalty to a provider does not necessarily mean that a customer is not content with their service, especially as in the broadband sector there are a range of non-price issues that the customer may value, including performance, service quality, and reliability.

Furthermore, the choice available to consumers in the retail broadband market is wide and the introductory offers made available by many providers are a function of a competitive market and help to keep prices low overall.