CMA urges Ofcom to take further action on loyalty penalties in broadband and mobile markets

CMA publishes update on Citizens Advice super-complaint

The Competition and Markets Authority has published its third update on its loyalty penalty investigation in five main market areas. The update considers the impact of the COVID-19 outbreak on this investigation and how it is affecting consumers. This article covers the issues relevant to technology lawyers in relation to mobile and broadband, as well as software issues.

Background

In 2018, Citizens Advice, a designated consumer body under section 11 of the Enterprise Act 2002, made a super-complaint to the CMA, asking it to investigate the issue of loyalty penalties, where new customers benefit from lower prices and better offers than existing customers.

In its super-complaint response, the CMA found that this is a significant issue and that action was needed to effectively tackle the loyalty penalty. It set out a package of recommendations to the regulators, including Ofcom, as well as recommendations to the UK government and regulators more generally. 

Broadband and mobile

In broadband and mobile, rules introduced by Ofcom came into effect in February 2020 for providers to notify customers when their contracts are coming to an end and tell them if they have any better deals available. It is too early to say how successful these end of contract notifications have been in tackling the loyalty penalty in these markets. The CMA says the notifications are a welcome step, although it is possible that some consumers will remain on much poorer deals. Therefore, the CMA welcomes Ofcom’s plans to monitor and report on the impact of these new requirements on the loyalty penalty. It urges Ofcom to ensure that providers are fulfilling their obligations to consumers, and to take further steps if needed. 

Mobile

Earlier this year voluntary commitments from a number of major mobile service providers excluding Three came into effect. O2 has since extended its commitment to customers who purchased their contract through Carphone Warehouse, which the CMA welcomes as a step towards protecting more consumers. It expects Ofcom to monitor the outcomes of these commitments, and to take further action against providers where necessary. However, the CMA continues to be significantly concerned that Three has not engaged with the process. It urges Ofcom to consider what more can be done to ensure Three’s customers are not being unfairly disadvantaged. As in broadband, the CMA encourages Ofcom to consider whether further measures need to be taken across the market to ensure the loyalty penalty is tackled equally effectively across the different providers. 

Ofcom is also undertaking work on the affordability of telecoms services, which it is due to publish later this year. This is particularly important given the financial pressures on consumers arising from COVID-19. The CMA expects Ofcom to consider appropriate interventions, including direct interventions like social tariffs to protect consumers - particularly those who may be considered vulnerable - in their markets.

Broadband

Ofcom has undertaken further work on pricing following its September 2019 report which will be published later this month, as part of their ongoing work to consider loyalty penalty concerns in the sector. This will look at the price differential faced by consumers who are out-of-contract, as well as assessing the impact of providers’ actions to help their customers, especially those in vulnerable circumstances. The CMA welcomes this further work by Ofcom to understand the issues in broadband and which consumers are most affected. It is important to have a consistent approach to data collection to develop an understanding of the issues that vulnerable consumers face across the market, to ensure they are not unfairly disadvantaged, as well as to enable more accurate comparisons across providers.

The CMA also encourages Ofcom to consider ways to ensure that the support by providers to vulnerable consumers is consistent across the sector. It remains concerned that different changes from different providers (most of which will come into effect by the end of the year) will not be as equally effective at tackling the loyalty penalty and may also confuse consumers. Ofcom’s forthcoming new guidance for providers on treating vulnerable consumers fairly will help with this to some extent, though progress by providers should be carefully monitored.

Roll-over contracts in the video games and anti-virus software markets

The CMA is also investigating whether longer term customers are losing out because of potentially unfair roll-over contracts in the online video gaming and anti-virus software markets. 

Next steps

The CMA's next progress update will be published in late 2020 or early 2021.

Published: 2020-07-15T17:00:00

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