Mid contract Consumer Price Index based price increases
Sun, Feb 25, 2024
Read in 4 minutes
Telecom providers (e.g. Vodafone, Eir, and Three [1]) have moved to a pricing model that includes an increase during the contract term based on the change in Consumer Price Index (“CPI”). I do not think this is in the best interests of the consumers and have been pushing on ComReg and the the Department of Communications to see whether this practice can be regulated.
The change typically takes the form of an increase of 3% + the annual CPI increase. For reference the CPI rose by:
- 8.2% in the 12 months to December 2022
- 4.6%. In the 12 months to December 2023
In the event that the CPI increase is negative the providers will not pass on a decrease opting instead to just increase the bill by 3%.
These types of contract are not good for consumers:
- Consumers will be hit with one price increase (two increases in 24 month contracts) during their contract term. There’s no way to predict how much of an increase to expect.
- It makes price comparison across plans difficult e.g. comparing fixed plans with plans with unknown CPI based increases.
It used to be that if a telecoms provider changed the agreed contract price during the contract term the consumer would have the right to terminate the contract. That is not the case with the new CPI based contracts - termination during the contract term would incur a termination fee.
Ofcom (the UK telecoms regulator) proposed to ban this practice in December 2023. ComReg in Ireland has concerns about these schemes. Without a change in national legislation ComReg has no power to prohibit this practice. The Department of Communications does not seem minded to legislate.
ComReg response
2 February 2024
CPI price increases mean that those who sign up to minimum term (usually 12, 18 or 24 month contracts) will be subject to at least one price increase during their minimum term without being able to exit their contracts without penalty. In some cases, the price increase could happen immediately after consumers have entered into a contract. CPI price increases in Ireland generally occur in April. The majority of large service providers, but not all, have implemented a CPI clause (known also as an ‘in-contract price-increase clause’). For 18 or 24 month contracts (the maximum contract duration permitted in Ireland), there may be two price increases without a right of exit.
While ComReg has no retail price regulation role, ComReg has been concerned from a consumer protection perspective about this practice since its introduction in 2021. This follows an ECJ Judgement which found that there is no modification to the conditions of a contract (that would trigger a right of exit for the customer in accordance with EU law) where standard terms and conditions provide for the possibility of increasing charges in accordance with an objective consumer price index compiled by a public institution. ComReg’s concerns relate in particular, to
- (i) the inability for consumers to exit their contracts without penalty when their price is increased during the contract,
- (ii) uncertainty about the actual price increases that may occur over the lifetime of their contract (making it harder to budget and compare offers),
- (iii) difficulties consumers may have with higher costs following price increase(s) and
- (iv) the prospect of financial penalties should they seek an early termination of their contract.
ComReg has advised Department of the Environment, Climate Action and Communications (DECC) of this issue and of ComReg’s associated concerns. ComReg has informed DECC of practices in other countries (including Ofcom’s proposal in the UK) and ComReg has suggested possible options for DECC to consider. Ofcom’s proposal is to require the service providers to include the actual monetary price increases in the contract and ban linking any price increase clause to CPI. Without a change in national legislation, ComReg has no power to prohibit this practice or to allow contract exit in the case of CPI increases.
Department of the Environment, Climate Action and Communications response
15 February 2024
Parliamentary question 7212/24
Question
To ask the Minister for the Environment; Climate and Communications when he plans to legislate to prevent retail telecoms and broadband providers from offering variable priced contracts based on the Consumer Price Index; and if he will make a statement on the matter.
Reply
The pricing levels set by telecommunication services providers, including for mobile phone and broadband services, is a matter for those relevant service providers operating in a fully liberalised market regulated by the Commission for Communication Regulation (ComReg). ComReg is statutorily independent in the exercise of its functions in accordance with Section 11 of the 2002 Act and is directly accountable for the performance of its functions to Committees of the Oireachtas in accordance with Section 34(2) of the same Act.
Any proposal to legislate to prevent retail telecoms and broadband providers from offering variable priced contracts based on the Consumer Price Index would require careful consideration.
Notes
[1]