In a significant move that’s set to transform how consumers grapple with their broadband, mobile and possibly TV bills, BT Group has announced a major overhaul of its pricing policy.
This change, influenced by Ofcom’s regulatory push, addresses the contentious issue of mid-contract price increases – a practice that has long frustrated UK consumers.
While this move by BT does not eliminate these increases, it does at least promise a clearer understanding of them.
In an announcement released today, BT is indicating a move towards a model where future bill adjustments will be more transparent, giving customers a clearer view of what to expect in their upcoming charges every year.
Here’s everything you need to know about these upcoming changes.
Annual Price Increases: Ofcom’s Not Happy
Before delving into the specifics of BT’s new pricing strategy, it’s important to understand the role of Ofcom, the UK’s communications regulator, in prompting this industry-wide shift.
Ofcom’s statement in December 2023 set the stage for a significant change in how telecommunications companies, including broadband and pay-TV providers, approach their pricing models in the future.
Ofcom’s concerns centred on the clarity and predictability of price rises in telecom contracts.
The regulator observed that most major phone, broadband, and pay-TV companies were incorporating mid-contract price increases linked to uncertain future inflation rates.
We all know this – every year, around March / April, the companies announce price increases for subscribers who are under contract – and most have no choice but to accept those increases, at least until their contracts are up (in some cases, these increases can be used to break the contract – but it depends on the specific contract and the amount of the increase).
This practice, while legally compliant, often left customers facing unexpected and sometimes steep price hikes, with little understanding of the underlying reasons.
Ofcom’s proposal highlighted that such pricing models could undermine the competitive market by obscuring the true cost of services and limiting consumers’ ability to make informed choices.
Ofcom’s analysis revealed that a significant portion of broadband and mobile customers were subject to these inflation-linked price rises, yet many were unaware of the implications or the mechanics of these increases.
Therefore, Ofcom is planning to semi-ban these types of price increases. Prices will still increase annually, but, at the very least, customers will be told in advance by how much – exactly (in “pounds and pence” – not in percentages).
While BT is one of the first major providers to announce changes in line with Ofcom’s proposal, the impact of these regulatory shifts is expected to ripple across the entire broadband, mobile and pay-TV market.
BT’s Current Pricing Model: Inflation Plus a Bit Extra
As of now, BT’s pricing model adjusts annually each year on March 31, based on the Consumer Price Index (CPI) – a measure of inflation – plus an additional 3.9%.
In today’s announcement, BT has laid out a roadmap for its transition to a new pricing model. The details provided by Marc Allera, CEO of BT Group’s Consumer division, offer a glimpse into the company’s strategy for future pricing.
Responding to Ofcom’s guidelines and customer feedback, BT plans to implement a pricing model that specifies any changes in clear “pounds and pence”.
This means instead of percentage-based increases, customers will see a set amount in their contracts. For example, a £1.50/month increase for mobile customers and a £3/month increase for broadband customers.
To illustrate, let’s consider the real CPI rate in March 2023, which was notably high at 10.1%. Under BT’s current pricing model, the total increase for customers would typically be the CPI rate (10.1%) plus the fixed 3.9%, totalling a 14% increase.
So, if you were paying £30 per month for your broadband service, a 14% increase would add an additional £4.20 to your monthly bill, bringing it to approximately £34.20 – a £50 increase over an entire year (and, of course, broadband and TV prices are often higher than that).
This substantial jump reflects the combined effect of a high inflation rate and the additional fixed percentage.
And while this year’s CPI rate will be lower than last year’s – that’s exactly the point – there’s no way of knowing how much the exact increase will be each year until we’re near the actual date.
Under the new model, the increase is clear from the start.
For example, if you sign up for a contract with a £30 monthly fee, and BT states an increase of £3 per year, you know that after one year, your bill will rise to £33, and then to £36 the next year, and so on.
BT also stated that its commitment to protect customers in vulnerable circumstances will not change, and customers in financially vulnerable circumstances on EE Basics or BT Home Essentials will continue to pay in the same way.
When Is BT Changing Its Pricing Model?
According to BT’s statement, the final details of the new pricing model will be confirmed closer to the summer: “We’ll let our customers know clearly and in good time how the way we communicate and charge for their contracts is going to change.”
However, it’s important for customers to note that the change won’t be immediate.
This means that the company’s upcoming price increase – in March 2024 – will still use the existing model of CPI+3.9%, with BT set to confirm the exact increase details in the near future.
For next year’s annual price increase, however, the new, more transparent pricing system will be implemented.
With BT also owning EE and Plusnet, it’s safe to assume these changes will be implemented for customers of EE Broadband and Plusnet as well.
It remains to be seen, however, how BT’s pay-TV operations, recently rebranded as EE TV, will adapt to these changes.
There’s currently no specific information on whether EE TV will also adopt this new transparent pricing model for its services.
Update: EE told us that future pricing policy details for EE TV will be confirmed in the coming months.
I may be wrong but, inflation does sometimes come down, thankfully, so my question is, when might we see prices fall in line with inflation falling?
Falling inflation figures means prices are rising at a slower rate, not that prices are coming down.