UK’s broadband firms set for £1.7bn windfall with above-inflation price rises

BT Broadband

The UK’s biggest broadband providers are to benefit from an almost £2bn windfall when they push ahead with inflation-busting price increases next spring which will further fuel the cost-of-living crisis, an analysis shows.

Many of the country’s main internet providers – including the largest player BT, along with TalkTalk, Shell and Vodafone – use a mechanism to increase the cost of bills annually by the rate of inflation as measured by the consumer prices index (CPI) in January, plus 3.9%.

The Bank of England forecasts that inflation will hit 13.3% in the fourth quarter, while some analysts have warned it could top 22%, meaning the companies will benefit from almost £1.4bn in extra revenues from the next round of price rises next year, according to estimates from broadband provider Hyperoptic.

BT, which attributed the majority of sales growth between April and June to this year’s almost 10% bill hike, has already said that it will “stick the course” next year as its own costs also soar.

Virgin Media O2, the UK’s third biggest broadband provider, introduced an even bigger price increase this year of 3.9% above the retail prices index (RPI) rate of inflation, which is several percentage points higher than the CPI.

The provider does not contractually guarantee a price rise each year – although this usually does happen – but assuming it does put up bills that would push the overall telecoms windfall above £1.7bn, according to one analyst.

This figure does not include the billions more that the telecoms companies will make by also raising prices on mobile phone contracts again next year.

“Broadband is a vital utility and – now more than ever – it needs to be affordable,” said James Fredrickson, director of policy at Hyperoptic.

In June, the UK’s biggest mobile and broadband companies agreed a plan at a government-led summit to help customers struggling to pay bills, including moves to allow switching to cheaper deals without paying a penalty and offering more low-cost “social tariffs”.

Sky, the UK’s second biggest broadband provider, has launched an 18-month “price freeze” for new customers, as competition heats up with households looking to cut their telecoms bills. Unlike most of its rivals, Sky does not link its price rises to inflation, with its annual increase working out to an average of about 5% this year.

Last month, the consumer group Which? estimated that 5.7 million households faced at least one “affordability issue”, such as missing a payment or having to cancel or change a service, with their mobile, landline or broadband service in April.