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Ofcom has today announced its intention to ban rollover contracts from December of this year for landline and broadband customers.
Rollover contracts, known as Automatically Renewable Contracts (ARCs), require customers to “opt out” of their agreement or they continue onto a new contract period. Once this is in place consumers are tied and have to pay an early cancellation fee to leave the company.
Ofcom estimates that around 15% of UK customers are on this type of contract, with BT being the biggest telecommunications provider to use the practice.
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.”
Providers will no longer be allowed to sell this type of contract from December 31st and the regulator has introduced a timetable so that existing agreements can be removed.
They say this “takes account of system changes that will need to be made by communications providers”
The changes apply to both residential and business customers and providers will be expected to provide substitute deals for consumers currently on rollovers.
Other companies that currently offer this type of contract include: Adept Telecom, Axis, Eze Talk and iTalk for residential as well as TalkTalk Business, Titan and Optimum Calls for business customers.
The move is intended to make it easier for customers who are not happy with their supplier to switch, and will help make the market more competitive.
Yesterday TalkTalk boss David Goldie said that BT was once again trying to monopolise the broadband market by being slow to release pricing details to wholesale buyers.
“At all times BT is thinking about how it can recover the monopoly position that it lost many years ago,” Goldie told the Guardian.
Goldie added that the lack of competition could see Britain ending up with “a second-class network, with fibre laid to the street cabinets, rather than direct to homes”.
He went on to say that BT would have to be guided by Ofcom’s insistence, which could further delay the roll out of fast broadband across the UK.