Shares in BT Group PLC (LSE:BT.A) shares fell after the UK telecoms regulator launched a probe into the sector's broadband price hikes, which are seen as leading to considerable uncertainty for consumers.
Ofcom said it was investigating the industry’s practice of hiking prices above inflation in the middle of customers’ contracts.
BT shares dropped over 3% to 134p, while Vodafone Group PLC (LSE:VOD), which is more geographically diverse, was little moved.
This year, most customers getting with BT, Vodafone, Three and TalkTalk as their internet supplier will be hit with 14%-plus price hikes in April.
The problem for the watchdog is that many customers are unaware when they sign up that such price increases are likely.
“We are concerned about the degree of uncertainty consumers face about future price rises specified in contracts on the basis of inflation,” the watchdog said as it launched the review.
“The unpredictability of inflation rates means it can be difficult to know – months in advance – what an inflation-linked price rise will equate to in pounds and pence when consumers enter a contract.”
Around a third of consumers on broadband contracts do not know if their provider can increase their prices during the contract, research by Ofcom has found, with half of those aware of the possibility unsure how their prices would be calculated.
Telecoms companies currently link their contracted price rises in April to the December consumer price index (CPI), which reflects overall inflation over the previous 12 months.
Broadband and mobile providers enjoy little-known clauses that allow them to raise prices each year by CPI plus an extra 3% to 3.9%.
Last month CPI was confirmed at 10.5%, to which BT, Vodafone and Plusnet add a further 3.9% and TalkTalk adds 3.7%, while Sky and Virgin Media contracts allow mid-contract price increases with no specified pricing formula.
The formula was agreed upon in 2021 when inflation was running at 1.5%.
But with high energy bills leading to inflation reaching double digits since last summer, household finances are under significant strain and Ofcom director of telecoms consumer protection, Crisin Luna-Esteban said: "Customers need certainty and clarity about what they will pay over the course of their contract. But inflation-linked price rises can be unclear and unpredictable. So we’re concerned that providers are making it difficult for customers to know what to expect."
She said millions of customers are currently not tied to contracts, meaning they could cut their bills in the short term by switching to a lower-price contract or moving provider.
"We’re urging everyone to check their account and see what their options are," she said.