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Ofcom issues guidance allowing small businesses to exit contracts

14 November 2013

Ofcom has issued guidance to allow small businesses to exit their landline, broadband or mobile contract without penalty if their provider increases the cost of their monthly deal.

The guidance outlines how providers should interpret and apply current telecoms sector rules in relation to price increases during fixed-term contracts as well as confirming the cancellation rights it expects providers to give consumers following price increases.


The regulator states that under General Condition 9.6, communications providers are required to give customers a minimum of one month’s notice of any change to their contractual terms that is likely to be of ‘material detriment’ and customers must be able to withdraw from their contract penalty-free following such notice. 


This Guidance sets out that Ofcom is likely to regard any increase to the recurring monthly subscription charge in a fixed-term contract as ‘materially detrimental’ to consumers; providers should therefore give consumers at least 30 days’ notice of any such price rise and allow them to exit their contract without penalty; and any changes to contract terms, pricing or otherwise, must be communicated clearly and transparently to consumers.


The Guidance does not apply to any non-price changes to contracts. However, the possibility of communications providers responding to Ofcom’s decision by reducing the call and/or text and/or data allowance included in a customer’s monthly subscription price has been considered and as such, Ofcom would regard such action as a price increase – as consumers would be getting less for the same money. The Guidance would still apply in those circumstances.


Ofcom also found that some consumers were caught unawares by mid-contract price rises and were not sufficiently warned this could happen when they signed up to their deal. In some circumstances, consumers may also have not been made adequately aware of their right to exit their contract, or of the amount of time they had to exercise this right.


Addressing this, the Guidance explains how providers should communicate any contract modifications, pricing or otherwise, to consumers, which includes ensuring that letters or emails about contract changes are clearly marked as such, either on the front of the envelope or in the subject header. Notifications of price increases must also be clear and easy to understand and make customers aware of the nature and likely impact of the contract change.

 

Where relevant, information about the customer’s right to exit the contract should be made clear upfront – for example, on the front page of a letter or in the main email message, rather than via a link. The period within which consumers can cancel their contract (Ofcom’s guidance sets out that providers should allow consumers 30 days) should also be made clear.


The new Guidance comes into effect 23 January and will apply to any new landline, broadband, and mobile contracts (including in some cases bundled contracts) entered into after this date. A small business in this case counts as one with ten or fewer employees. 

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