UK broadband prices may jump more than 25% if inflation persists

The UK’s biggest mobile and broadband providers are set to increase charges above the soaring rate of inflation early next year, while government officials urge them to consider the effect on the cost-of-living crisis.

Following their most recent earnings, in which 2022 price rises boosted revenues, executives at EE-owner BT Group Plc and Vodafone Group Plc indicated they’ll press ahead with contracts that add 3.9% on top of the Consumer Prices Index. Virgin Media O2, jointly owned by Liberty Global Plc and Telefonica SA, annually raises fees the same 3.9% plus the Retail Prices Index, which was two percentage points above CPI in July.

That means charges could jump more than 26% in 2023 if analysts at Goldman Sachs prove right in their Tuesday forecast that the UK’s headline inflation gage could top 22% in the case of gas prices remaining high. The Bank of England’s latest forecast was that UK inflation would peak at 13.3% in the fourth quarter.

In June telecom executives were called in to meet Culture Secretary Nadine Dorries and committed to do more to help customers cope with rising costs. Officials are still watching closely.

“We continue to urge broadband and mobile companies to carefully consider the impact their annual price rises may have on households struggling with the global rise in the cost of living,” a spokesman for the Department for Digital, Culture, Media and Sport said in a statement.

With regulator Ofcom, officials are monitoring how many customers are signing up for low-priced “social tariffs” available to some people on state benefits, which are priced between £10 and £25 per month.

Social Tariffs
An Ofcom spokesman encouraged people to shop around, and said millions would be able to cut bills today by switching to social tariffs or by finding a new deal if they’re at the end of a contract. As of February 55,000 homes had signed up for social tariffs, just 1.2% of those eligible, though numbers have risen.

“While Ofcom doesn’t set retail prices, we’re concerned about their impact on households who can least afford them,” he said.

A Virgin Media O2 spokesman didn’t disclose how many customers take a social tariff but said the number had increased 80% since March, while BT said the number had doubled in the last two quarters. Three UK doesn’t offer a social tariff.

However, most prices are on track to jump significantly as carriers say they need to recoup investments amid rising costs.

“With the input prices going up for everybody in the country, we have to unfortunately pass those costs onto our customers,” BT Chief Executive Officer Philip Jansen told reporters after the company’s first quarter results in July. “We’re going to stick the course on that.”

Vodafone Chief Executive Officer Nick Read indicated the same kind of approach, and this week rolled out a similar model in Spain.

“We built them into the contracts of customers moving forward, and therefore I expect the industry to continue to do that,” he said about the UK price rises during a results call with media in July. “We don’t make our cost of capital in the UK, and therefore we need to improve our financial position, so obviously this is a contributor.”

A Vodafone spokeswoman said “we know no one wants to see price rises” but pointed to rising costs including energy, staffing, logistics and investment in networks as people use more data. A BT spokesman encouraged customers eligible for social tariffs to get in touch and switch, adding “we are committed to supporting customers who are worried about their finances and who need extra help.”

Three UK, owned by Hong Kong conglomerate CK Hutchison Holdings Ltd, has a different policy which imposes a flat 4.5% increase every year. In an early August interview, Chief Financial Officer Darren Purkis stopped short of an ironclad commitment to that model.

Asked if Three UK would alter pricing in response to inflation, he said “there are no plans to at this point” but “if we did change anything, it would only be for people that have joined after that point in time” — not retroactively applying a change to users already signed up.

A representative for Virgin Media O2 declined to comment and a Three spokesman referred to CFO Purkis’s comments. Bloomberg