Automatically Renewable Contracts will be banned in the UK from the end of the year, says Ofcom

Ofcom, the UK telecoms regulator, has announced that it has banned contracts that automatically tie customers into new contracts if they fail to opt out. The new rules, which come into force from 31st December, will ban Automatically Renewable Contracts (ARC), which commit customers to a new minimum term for their broadband, and impose penalties for leaving.

According to Ofcom, UK incumbent BT is the largest provider of these types of contract with 15 per cent of its customers signed up to them. TalkTalk Business, Titan Telecoms, and Optimum Calls were singled out as offering these to business users. Ofcom said that companies are required to move all customers on such contracts to alternatives by the 31st December 2011 deadline.

Ofcom Chief Executive, Ed Richards, said in a statement that: “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.”

Chairman of the Communications Consumer Panel, Bob Warner, commented on the announcement saying: “”This is really good news for consumers. It will prevent residential and small business customers getting stuck with fixed landline and broadband contracts that no longer meet their needs because contracts have been extended for another year without their active consent.”

“This won’t have a major effect on BT’s subscriber numbers, as operators have long had to charm, rather than strong-arm, UK customers into subscribing and staying”, commented Rob Gallagher, principal analyst at Informa Telecoms & Media.

“The principal tool they can employ is bundles and BT appears to have some particularly attractive ones in its fixed-telephony and broadband packages. The incumbent has taken the majority of net new fixed-broadband subscribers for some quarters now, outpacing even Sky with its phenomenally successful TV and fixed-broadband packages. BT will continually need to review and refresh its bundles to remain competitive, but it already faced this challenge long before the ARC ban.”

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