A negative reaction for BT Group PLC (LSE:BT.A) shares was understandable said Barclays after the UK telecoms regulator proposed a ban on inflation-linked mid-contract price rises, which led to large bill hikes earlier this year.
Ofcom yesterday proposed rules to remove the inflation linkage in consumer contracts, which is a departure from the prior strategy of leaving the retail market alone, analysts at the bank pointed out.
In March and April this year, BT raised prices 14.4%, in line with December’s consumer price index plus 3.9%, meaning customers would pay £58 more per year.
After a consultation on the practice of inflation-linked clauses in UK broadband/mobile contracts, the watchdog concluded that operators must remove them in new contracts.
In the consultation itself, Ofcom said that telecoms customers must be told upfront in pounds and pence about any planned price rises, as customers find it difficult to estimate what price they would be paying when the contracts are inflation linked.
A new consultation on this proposed new requirement will conclude in February, with a final decision in spring 2024.
"We note that this move could be interpreted as Ofcom interfering with retail pricing, where it has no mandate, but from the consultation it is clear Ofcom believes it has the power to make such an enforcement," Barclays said.
Any enforcement would not impact the March/April 2024 price increases, the analysts noted, as it would not be implemented until the summer of 2024.
"We are surprised by the move," they added, as many European markets include inflationary/CPI clauses in customer contracts, and Ofcom has repeatedly indicated its goal is that pricing is clear.
"However, reading the consultation it is clear that Ofcom feels many customers do not understand the impact, and shows maybe a more interventionist Ofcom going forwards than we have become accustomed to."