Which? Warn Broadband ISP Loyalty Penalties Cost Users up to £220

Consumer magazine Which? has surveyed 3,000 of its UK members and concluded that broadband ISP customers who remain with their provider, and don’t haggle for a better price (i.e. after their minimum contract term has ended), are being hit with so-called “loyalty penalties” of up to £220 a year on average.

The claims follow only a month after the magazine last attacked the “loyalty penalty” culture (here), which highlighted that 71% of respondents to a different survey of 7,000 broadband customers had been with their ISP for “at least” 3 years. This is important because the issue at hand relates to the very common practice of discounting, which exists across nearly all service sectors and is by no means unique to broadband.

In practice what this means is that the biggest ISPs tend to offer a reduced price for the first 12 months or more of a contract term in order to attract new customers, but after this the price will inevitably rise. Such discounts and special offers are fairly normal for any aggressively competitive service market, although not all ISPs are clear enough about how much you’ll pay post-contract.

According to Which?’s latest survey, customers of BT are “hit hardest” by the penalty, with those who didn’t haggle paying an average of £540 a year for their broadband service and those who did negotiate paying just £372 a year.

The magazine added that new customers who took out a contract with BT for standard broadband would pay £320 a year on an 18-month contract or £380 for a superfast broadband package, which was said to be £160 less than the average amount paid by long-standing customers.

Curiously Which? makes no mention of Sky Broadband, which is despite them being the market’s second largest ISP after BT.

Conclusions

In our view such discounting shouldn’t really be a concern, provided the ISPs make their post-contract prices completely clear; ideally right alongside the discounts (some ISPs do this but others don’t). Equally it’s important to highlight that not all ISPs adopt the same model and many smaller providers, which may offer advanced features (static IP etc.) and better quality, simply charge a set monthly fee that rarely ever changes.

A few providers, such as TalkTalk, also offer an alternative approach by enabling existing customers to re-contract on to a lower price point than their standard rate. Alternatively it’s possible that a bit of haggling could save you a lot of money (see our Retentions Tips article) but only about 10% of consumers seem to ever do this (if you’re happy with the service then negotiation should be your first port of call before switching).

At this point we’d be remiss for not highlighting the “people who live in glass houses shouldn’t throw stones” problem with Which?’s crusade. The company is currently selling a 2 month trial of their own magazine for £1 and this automatically rises to £10.75 a month thereafter, unless you notify them to stop. Quite an increase.

Margot James, UK Digital Minister, said:

“This is yet more evidence that loyal customers are being penalised, which is not right.

We’ve strengthened Ofcom’s powers to protect consumers and they are taking action by proposing that providers make it clearer to customers when they can switch to a better deal.”

Meanwhile the UK Government’s Competition and Markets Authority (CMA) has already opened a “super-complaint” to examine how consumers who remain loyal to their provider can end up paying “significantly more” than new customers (here), but we don’t yet know what the outcome of that will be.

However, the CMA will focus on “vulnerable consumers” (pensioners etc.) who are often least likely to change their service, which means that if they impose anything new upon the industry then it may not apply to everybody. But we do hope that the CMA at least moves to force greater pricing clarity in order to stop certain ISPs from hiding their post-contract prices away in the small print or at the end of order pages.

On top of this Ofcom are also moving to require end-of-contract notification letters to be sent (here), which should help to keep consumers informed about how much they’re currently paying and what they might pay if they stay with the same ISP.

UPDATE 11:51am

A statement from BT has arrived.

A BT Spokesperson said:

“We fully agree that customers shouldn’t overpay for the service they receive, and we are working harder than ever before to communicate with our customers about their options. We are clear with new customers who can benefit from promotional offers what the price will be when this period ends.

We also encourage customers to contact us to discuss the deals and offers available to ensure they are on a package that suits them. This has been successful as thousands of BT customers each week choose to upgrade to superfast fibre broadband and plans that best meet their needs.”