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An inflation wheeze is dialling up sales for telecoms providers

Inflation means this year is going to be pretty miserable for consumers. Telecom providers don’t do it any better.

as it was Report in detail Earlier this year, the broadband and cellular operators found a new trick: annual price increases within a contract linked to inflation, with the addition of a fixed interest rate increase.

True, telecom spending pales in comparison to energy price increases. But it represented about 3-4 percent of household spending, or £80 a month according to Anders’ analysis. And the way the raises are implemented is deteriorating.

At BT and EE, Vodafone, Virgin Mobile and O2, consumers can Now enjoy an annual price increase of 3.9 percent plus inflation in the middle of their contract. Virgin Media O2 Air-conditioned even uses the outdated measure of retail price inflation as the basis for its price increases rather than the wider CPI. If prices had been set based on June’s inflation figures, it would have meant a 2.4 percentage point bigger increase for Virgin Media O2 customers than BT, EE and Vodafone customers. At least the company only applies it to the “airtime” part of the contract, not the device component as well.

To put it bluntly, these are beeps. We know consumers are lazy once they sign up for something. This is why regulators have had to act on loyalty penalties across sectors. It’s another way of semi-stealthfully imposing price increases within contracts, regardless of whether suppliers (and the regulator) say they’re upfront about it.

It’s also beeping which seems to work out nicely for the operators. Last week the three BT, Vodafone and Virgin Media O2 published results that noted the role of UK price increases in helping to boost revenue and profit growth. Adjusted earnings before interest, tax, depreciation and amortization for BT’s consumer unit climbed a notch Annual rate of 20 percent April-June. At Vodafone, revenues from services in the UK and Ireland climbed 6.5 percent Following the increase in contract prices.

The telecom companies justify the increases in three ways. The first is that they are also experiencing cost inflation thanks to energy prices and wage demands, as well as the CPI built into wholesale prices. The second is to point to the huge investment they are making in network infrastructure. But if the 3.9 percent charge is meant to finance additional investment, it’s strange that so many companies have decided they have exactly the same investment need. The third defense is the most instructive. That is to indicate the value consumers get from their data packages.

For years, the price consumers pay for what they use has been declining in real terms. The use of data increased by about 30-40 percent per year. The prices are not. Companies have opened a back door to recoup some of the costs of the increased demand on their networks.

Suppliers also earn below their cost of capital. The last direction of the industrial policy was to encourage investments in broadband and 5G infrastructures. This may have made governments – and regulators – more willing to accept operators pushing for price increases. When Ofcom published it Pricing Trends Report Last year, he noted that in 2021, providers would implement increases above inflation after years of declining rates. He then reiterated the line in the industry about what consumers get in return: increased investment to support growing demand. This does not indicate that he is going to reject the practice.

The risks for suppliers are threefold. At its simplest, consumers can trade when they exit the contract if price increases are too pronounced. Second, political priorities can shift from a preference for investment to a greater focus on consumer protection. So far the focus has been on vulnerable consumers, with things like social tariffs for households receiving Universal Credit. But politicians can encourage broader action against above-inflation hikes. And third, a consistent increase in prices throughout the industry may encourage an increasingly protectionist Competition and Markets Authority to block any further attempts to consolidate, a long-standing desire of the industry (and investors).

Assuming there’s no imminent backlash, there’s worse. While increases have been steep enough this year – 9.3% at BT and 11.7% at Virgin Mobile – the Bank of England’s latest forecasts put BT’s rise next year closer to 17%. This may be enough to force action on the part of the operators. Otherwise, consumers will be stuck with yet another extortion – and telecom operators join the list of companies whose prospects actually improve in the face of inflation.

cat.rutterpooley@ft.com
@catrutterpooley

An inflation wheeze is dialling up sales for telecoms providers Source link An inflation wheeze is dialling up sales for telecoms providers

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