The end of rollovers

Ofcom have started a consultation period, up to 12 May, with a view to ending the practice of automatically rolling over telephone and broadband contracts at the end of each period. Although rollover contracts were once standard virtually across the telephone industry they now account for only about 15% of all residential telephone contracts.

Whilst companies such as Callagenix offer a range of contracts mostly on a pay as you use basis, several other providers including BT offer contracts which automatically roll over at the end of each year. Ofcom are concerned that this practice is anti-competitive as well as working to the detriment of business and private consumers alike.

Although rollover contracts are not confined to telephone and broadband, the energy industry has already had to switch from automatic rollover to providing notification whilst the insurance industry, typically home and car insurance, also provide notice each year. The trouble is that whilst automatic rollover is easy and cost effective for business and consumers alike it caters for those who either are happy with their contract or who for whatever reason are not interested in shopping around. This tends to lead to a swathe of the population who may either be paying too much for their contract or may be missing out on a contract which would better suit their needs.

For example, a customer may well have been on the same rolled over telephone contract for the last ten years. With a growing family their telephone usage might have soared and with relatives moving abroad they may regularly need to telephone overseas. The limited use contract that they started out with might be entirely inappropriate now with services such as VoIP offering drastically reduced telephone costs. Automatically rolled over telephone services would mean that even if the family wanted to break the contract, unless they caught the notice period right they could face substantial charges.

From the point of view of the telephone service provider, creating packages for and marketing to those on rollover contracts is a potentially pointless exercise with inertia and termination costs conspiring against competition. This acts to the detriment of the market as a whole and is a potential disincentive to bringing in innovative new service packages.

With the Ofcom consultation applying to both telephone and broadband services they are acknowledging that these services are moving ever closer together with internet telephoning being used more frequently as a cost effective alternative to the use of landlines.