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Ofcom proposes regulations to curb service termination penalties

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Ofcom, the UK's telecom regulator, on Thursday proposed new rules designed to prevent service providers from charging consumers a penalty if they decide to end a service contract when a provider raises their rates.

The regulator said that it wants customers to be able to end their phone, broadband or wireless contract "without penalty if their provider introduces any price increase during the term of the contract."

In addition, Ofcom wants service providers to disclose potential price increases and make their customers aware of the right to cancel a contract if prices go up during the course of a contract.

The current rules only allow an exception from paying termination fees when a provider agrees that the price increase "would be likely to cause material detriment" to the consumer.

Under the "exit without penalty" rules, service providers would have to notify customers at least one month in advance of any changes in their contract. And while service providers will still be allowed to raise prices during a fixed-term contract, consumers won't be required to pay a penalty if they cancel due to the price rise.

Ofcom decided to launch a consultation after conducting an analysis of the fairness of certain contract terms. The regulator looked at 1,644 consumer complaints it received about changes to terms and conditions during the period Sept. 2011 to May 2012.

One of the common complaints was that consumers said they were never notified that their service provider was going to increase service prices on what they thought were fixed contracts.  Other consumers said that service providers should not be able to raise prices during a contract and that they should be allowed to end the contract without having to pay an early termination penalty.

"Many consumers have complained to us that they are not made aware of the potential for price rises in what they believe to be fixed contracts," said Claudio Pollack, Ofcom's Consumer Group Director, in a release announcing the new proposal. "Ofcom is consulting on rules that we propose would give consumers a fair deal in relation to mid-contract price rises."

The regulator has asked stakeholders to submit their views on this issue by March 14 and expects to publish a decision in June.

For more:
- see the release

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