The Loyalty Penalty

The Loyalty Penalty

What is it?

The loyalty penalty is a huge downside of not switching broadband regularly and instead staying with the same provider after the initial introductory (often price-incentivised) contract has ended. Ofcom collected data on 20 million customers and found that 40% of broadband customers – or 8.7 million customers, are out of their initial introductory contract and consequently, pay roughly £4.70 more a month than their providers average price for that service.

‘Which?’ found that 13% of customers felt too loyal to their provider to switch, yet this loyalty is being penalised. 8 in 10 bill payers are charged significantly higher prices for sticking with the same supplier in at least one essential market – of which broadband is included, and up to 64% of consumers were unaware that loyal customers were charged the same or more than new customers.

The Loyalty Penalty

What’s being done about it?

In September 2018, Citizens Advice submitted a super complaint to the Competition and Markets Authority (CMA). The CMA agreed with the findings presented from various sources like ‘Which?’ and in July 2020 posted an update on the situation. CMA sent a package of recommendations to regulators like the FCA and Ofcom and, as a result, Ofcom introduced new rules like; ensuring broadband customers are made aware of when their contract is coming to an end and reminding out-of-contract customers that they are out of contract and letting them know their providers best deals on a yearly basis. The CMA also sent cross-cutting recommendations to regulators and the government in general and regularly with said organisations to track the progress.

The CMA are continuing to work closely with regulators and the government to tackle this loyalty penalty issue. Since January 2020, any significantly progress has been heavily impacted by COVID-19.

How COVID-19 has had an impact

We’re all aware of the colossal impact COVID-19 has had, not only on our own individual lives, but also on every market industry and society across the globe. It’s no surprise then, that the broadband usage level across the nation has altered and the CMA, regulators and the government now have reduced resources to deal with this loyalty penalty issue.

Broadband usage has seen a huge increase in usage as more people are working and learning remotely, following government lockdowns and social distancing guidelines. Some broadband providers have reported an increase in weekday, daytime traffic of between 35-60%. COVID-19 has also led to more people out of work or relying on furlough pay or other financial aid, meaning that people are facing additional pressures due to COVID-19 such as becoming unemployed or relying on financial aid and therefore shouldn’t be expected to monitor their broadband package to figure out whether they need to switch or not. COVID-19 has also meant that the CMA has an increased level of exploitative practices to regulate such as investigating companies charging customers for excessively priced hand sanitiser or other COVID-related products. However, whilst CMA has a reduced capacity to deal with the loyalty penalty issue, Ofcom have increased their resources into monitoring the suitable pricing of broadband deals to ensure that those households that are perhaps on a tighter budget, are not unnecessarily spending more on their broadband.