Ofcom bans rollover contracts
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Automatically Renewable Contracts (ARCs) or “rollover” contracts have been controversial amongst telecoms regulators since they first became prevalent in the fixed line residential market in around 2008. Under ARC contracts, unless the customer expressly opts out at the end of the term, the contract renews automatically and the customer is tied into a new minimum term contract, with charges for early termination. UK regulator, Ofcom, has now announced a ban on the use of ARCs for fixed voice and fixed broadband residential and small business services. Ofcom’s view is that ARCs lead to reduced levels of customer switching, which in turn is harmful to competition. Telecoms providers will need to adjust their offers and put in place provisions for migrating customers currently on ARCs.
- From 31st December 2011, the sale of new ARCs to residential or small business customers for fixed voice and fixed broadband services will be banned. A “small business” customer is one with ten (or fewer than ten) employees.
- ARCs must be completely phased out by 31st December 2012. This means that communications providers will have to migrate existing customers from ARCs to alternative contracts by this deadline. Ofcom realises migration will likely occur at the end of a minimum contract period. However migration can and must occur mid-contract when the ARC will not reach the end of its first term by the 2012 deadline.
Ofcom has also provided guidance on complying with the ARC rules (see Annex 3 of Ofcom’s statement). The general spirit of the guidance is that providers must act reasonably towards their customers and must not try to exploit the timeframes given for migration. It is made clear that the migration timeline is intended to ease the transfer rather than to provide a window for continued use of ARCs. Ofcom will require companies to take a flexible approach to early termination charges within this period if customers wish to exit their ARC before the expiry of the initial term.