Removing barriers to switching: Ofcom bans rollover contracts
Ofcom has confirmed that rollover contracts, which tie landline and broadband customers into repeated minimum contract periods unless they opt out, will be banned from December this year.
The contracts, also known as Automatically Renewable Contracts (ARCs), roll forward to a new minimum contract period - with penalties for leaving - unless the customer actively opts out of the renewal. The ban will apply to ARCs for landline and broadband services sold to residential and small business customers.
BT is the largest communications provider currently offering these contracts and Ofcom estimates that approximately 15 per cent of UK residential consumers are on rollover contracts. Other residential providers include Adept Telecom, Axis Telecom, Eze Talk and iTalk, while TalkTalk Business, Titan Telecoms, and Optimum Calls offer ARCs to business users.
Ofcom Chief Executive, Ed Richards, said: "Ofcom's evidence shows that ARCs raise barriers to effective competition by locking customers into long term deals with little additional benefit. Our concern about the effect of ARCs and other ‘lock in' mechanisms led to our decision to ban them in the communications sector."
Removing rollover contracts from the market
Ofcom has set out a timetable for the removal of rollover contracts from the telecoms market which takes account of systems changes that will need to be made by communications providers.
The sale of new automatically renewable contracts to residential and small business customers will be prohibited from 31 December 2011.
Ofcom will also require communications providers to move all residential and small business customers currently on rollover contracts to alternative deals, and to completely remove rollover contracts from the market by 31 December 2012.