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Ofcom stamps out rollover broadband contracts

The regulator has banned the sale of broadband and fixed-line contracts that automatically renew into another fixed-term period, saying they discourage people from switching provider
Written by Ben Woods, Contributor

Ofcom has banned 'rollover' broadband and landline contracts over concerns that they lock customers into long-term deals with few benefits.

Ofcom sign

Ofcom has banned 'rollover' broadband and landline contracts over concerns that they lock customers into long-term deals. Photo credit: Jon Yeomans

Such contracts automatically sign customers on a new minimum term once their previous term expires, unless they specifically opt out. Additionally, people who opt out midway are often charged penalty fees.

On Tuesday, the telecoms regulator said rollover arrangements, also known as automatically renewable contracts (ARCs), will be scrapped for all residential and small business customers from 31 December. Providers will have to move people on such contracts to alternative deals, and stop selling landline and broadband rollover contracts completely by the end of 2012.

"Our research, in particular the econometric analysis that we commissioned on the switching behaviour of BT customers, indicates a clear causal link between ARCs and reduced levels of consumer switching," Ofcom said in a statement. "We believe this effect stems from the opt-out nature of the process for contract renewal and that any example of such a contract is likely to be harmful to consumers and to effective competition."

As the contracts are extended without explicit customer consent, people can find themselves locked into a new deal, making it harder for them to switch providers, according to Ofcom. The regulator estimated that 15 percent of people with residential connections are on a rollover arrangement.

"This decision will obviously increase flexibility and ease of switching for end users, but I don't see this having any major implications on the competitive landscape," said Jan Hein Bakkers, research manager for European telecoms at IDC. "The providers that use ARCs... will have to adapt their offerings, but they have probably been expecting this since Ofcom started looking into this.

"ARCs for telephony and internet were prohibited in 2009 in the Netherlands, and we have not witnessed any substantial changes in market shares that can be attributed to that."

While a number of companies use automatic rollovers, BT is the largest provider still using the contracts, according Ofcom.

"BT is disappointed that Ofcom has decided to ban renewable contracts," a spokesman for the company said. "Our customers tell us they are happy with the discounts offered by these contracts, and we don't believe there is any evidence that they damage competition, given that the UK telecommunications market is amongst the most competitive in the world."

Although the ban does not come into effect until December, BT said it will stop selling ARCs immediately for new customers. However, rollover subscribers due for renewal before 31 December will "renew in the normal way", the company's spokesman said.

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