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TMCNet:  O2 locks customers into higher prices after changing contract terms

[January 24, 2014]

O2 locks customers into higher prices after changing contract terms

(Guardian Web Via Acquire Media NewsEdge) Millions of mobile phone subscribers will be handed contracts locking them into annual price rises after O2, the second largest British operator, changed its terms and conditions despite new rules designed to protect consumers.


From Thursday, all customers were supposed to be able to leave their phone or broadband provider without penalty if their tariff was increased midway through a fixed-term contract, after a crackdown by the telecoms watchdog Ofcom.

But the regulator's victory on behalf of households squeezed by the rising cost of living appears to have been shortlived. Hours after the new rules came into force, O2 announced a 2.7% price hike and a clause in its contracts under which customers will forfeit the right to walk away. Critics said that if other operators follow suit, Ofcom's reform will have succeeded only in locking yearly inflation in for consumers.

The Ofcom rules applied only to new contracts, which meant that anyone on an existing deal could already face price rises. O2's move means that all of its customers on pay-monthly bundles will see costs go up.

Consumer group Which? described O2's announcement as "disappointing news". Ofcom was persuaded to act on the issue after Which? lodged a formal complaint and 60,000 people backed its campaign for fixed contracts without loopholes. A total of 10 companies, including Vodafone, BT, Sky and Virgin Media, had put up prices having offered a "fixed-price deal" when customers took out the contract.

O2 is increasing prices for its 8 million monthly consumer contract customers as soon as 1 March, in line with the retail prices index (RPI), which stood at 2.7% in December. According to the explanation on O2's website: "An increase of this kind does not entitle you to end your agreement mid-contract. As set out above, our terms for customers signing up both pre- and post- 23 January allow us to apply a price increase to reflect RPI." With new smartphone deals typically running for 24 months, customers are likely to face two prices hikes during their contract. In the past, O2 has only changed tariffs mid-contract once before – with a 3.2% rise in February 2013. The new contract suggests a rise is now guaranteed once a year. "We will increase your Monthly Subscription Charges during March 2014 and from 2015, and each year thereafter, during April, we will increase or decrease your Monthly Subscription Charges by the RPI Rate and we will publish on our Website the relevant RPI Rate as soon as it becomes available (an "RPI Change"). If we do this more often and/or by more than RPI then you'll have the right to end this Agreement under paragraph 5.4." Which? executive director Richard Lloyd said: "We'll be keeping a close eye on other operators to make sure they follow the rules and give customers clear information about contracts at the point of sale. Unfortunately our mystery shopping research shows this doesn't always happen when people buy mobile phones." Ofcom said the terms were legal so long as they were clearly flagged at the point of sale. A spokeswoman said: "If a provider were to introduce increases beyond the price or prices a customer agreed to at point of sale, they would have the right to exit that contract without penalty. Ofcom will conduct research, such as mystery shopping, to assess the transparency of contractual information given to customers by providers at the point of sale".

If operators breach Ofcom's conditions, they can be punished by a fine of up to 10% of turnover.

A spokesperson for O2 said its sales people would make shoppers aware of the new terms before they signed. He added: "Price increases are never welcome but inflation has an impact on our costs. For most of our customers it will mean an additional charge of less than 60p on their monthly subscription. We continue to invest in our network and the services that matter to our customers while still offering great value for money." Three said it would not be following O2's lead, and that its fixed monthly recurring fees would not go up during the minimum term of a contract. "We support Ofcom's approach to fixing the price for pay monthly contracts for their duration. We think it's only fair that customers should have clarity around costs when they sign up to a contract." (c) 2014 Guardian Newspapers Limited.

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