Automatically renewable contracts that tie consumers with landlines into repeated minimum contract periods unless they opt-out are to be banned under proposals set out by Ofcom today.
These contracts, also known as rollover contracts, are currently offered by BT, and several smaller providers, to both residential and business users of landline services in the UK. The contracts automatically roll forward to a new minimum contract period - with penalties for leaving - unless the consumer actively opts out of the renewal.
Ofcom estimates that approximately 15 per cent of UK residential consumers are on rollover contracts.
Ofcom is concerned that rollover contracts make it harder for customers to switch providers and consequently reduce the benefits of competitive choice. For individual customers, this can mean that switching is made unattractive as the costs involved are unexpectedly high. For the market generally, it means less competition as it is harder for competing providers to attract customers on rollover contracts and therefore their ability and incentive to create lower cost and higher quality services is reduced.
Changes to regulations
Ofcom is proposing to amend its existing rules in relation to contract terms to prohibit opt-out contract renewals in any form in the landline and broadband sectors. If Ofcom proceeds with its proposals, providers who continue to offer this type of contract could face enforcement action including a financial penalty of up to ten per cent of turnover.
The consultation can be found here http://stakeholders.ofcom.org.uk/consultations/arcs/ and closes on 12 May 2011.