EE Ditches Inflation-Linked Price Rises in Drive for More Transparency

In a blog post earlier today, Marc Allera, CEO of BT Group’s Consumer division, confirmed that the operator is to end percentage-based price rises linked to inflation in its 24-month contracts. Instead, beginning early this summer, it will set out any planned increases in pounds and pence. These prices will then come into effect each March, starting in 2025.

Full pricing details aren’t yet available, but Mr Allera said new and re-contracting mobile customers can expect an increase from £1.50 per month (more if their deal includes a mobile phone), and broadband customers will pay an extra £3. This flat-rate approach means that people on higher tariffs will receive a proportionately smaller increase than those on lower plans. The £1.50 and £3 amounts will remain in place for the near future, so it won’t be that there’s a fresh increase each year, helping people to better plan their spending. Social tariffs will remain exempt from any price rises.

In my view, this is a smart move, intercepting the expected ban on the controversial practice after Ofcom opened a consultation in late 2023. The regulator said that the current inflation-linked format, which is widespread in the industry, was unpredictable and difficult to understand. Now, BT has a short window to promote a clearer approach to pricing over its rivals before most other operators inevitably follow suit.

Ofcom’s concerns aren’t about price increases, but about transparency. Indeed, one of its main recommendations was the “pounds and pence” methodology now taken on by BT. I agree that the current situation is confusing, as no one knows what the rate of inflation will be in the future. This was less of a concern when inflation was low, but as it spiralled people found their bills were shooting up by much more than they could’ve planned for. The highest increase — put through last year by O2 — was a whopping 17.3%.

Today’s announcement comes less than 24 hours before the UK’s December 2023 inflation figures are reported. Many operators, including BT, will use these figures as the basis for calculating annual price increases in a few months. We expect most customers will see a 7.5% to 8% jump. Although this is considerably down on many of last year’s double-digit hikes, it’ll still represent a significant increase for many.

And operators need to be wary. Raising prices is a delicate topic as households continue to grapple with cost-of-living concerns. In CCS Insight’s latest survey of mobile buying habits, due to be published next week, nearly three-quarters of people told us they may act if their mobile or broadband bill went up again this year. Among those affected by a price increase last year, 15% said they negotiated a better deal, and 5% changed providers altogether.

Although customers will benefit from greater visibility about the true costs of their package, a “pounds and pence” approach doesn’t mean paring back on the strategy to raise prices. Nobody wants to pay more, but the telecom industry is correct to point out its own rising costs, as well as heavy ongoing investment in mobile and fixed-line networks to cater for ever-increasing demand.

But here’s an interesting angle. BT’s average revenue per consumer contract customer in the first half of its fiscal 2023/24 was £19.90 per month. Let’s say prices go up in late March by 7.7%. This would equate to an average increase of about £1.50 — almost bang in line with BT’s proposed minimum. But with inflation likely to fall, average price rises could end up higher than they would’ve been under the original methodology. Ironically, Ofcom’s intervention may end up costing people more money in the long run.

The ball is now in the court of the UK’s other operators, some of which will probably quickly follow BT’s lead. But for would-be partners Vodafone and Three, there are some particularly crucial decisions. Pricing will probably form the most important part of the upcoming investigation into their planned merger and any move will be scrutinized by the competition watchdog. I assume they too will migrate away from the inflation-linked approach, but they could do well to hold fire as merger discussions continue. It could be that Vodafone and Three have to use pricing as a lever to win approval further down the line, and setting out a new approach now could simply draw more attention to a very sensitive issue.

More details about BT’s pricing approach will be revealed in time. I’m keen to better understand how it plans to cater for deals that combine airtime and mobile phones, which can vary drastically in price. Some of these will probably go up by a fair bit more than £1.50.

But for the time being, I applaud BT’s ambition to make things simpler and clearer. In today’s uncertain world, that’s something customers should welcome.