'Rollovers' scrapped in ruling by Ofcom.
ROLLOVER contracts for landline and broadband customers are to be banned after the telecoms watchdog accused providers of locking households into long-term deals with little additional benefit.
The packages see customer contracts roll forward to a new minimum term, often with penalties for leaving, unless the consumer opts out of the renewal. They will be scrapped from December 31, Ofcom said.
The automatically-renewable contracts (ARCs) make it harder for customers to switch provider and subsequently damage competition, the regulator said.
Consumer groups welcomed the move, but BT, the largest communications provider to offer ARCs, hit out at the decision and claimed that customers were happy with the discounts on offer.
Ofcom, which estimates that roughly 15% of UK residential consumers are on rollover contracts, said the ban will apply to ARCs for landline and broadband services sold to residential and small business customers.
Adam Scorer, director of external affairs at Consumer Focus, said the rollover ban was "extremely welcome" for consumers: "Rollover contracts can be confusing and penalise customers.
Many people have been unknowingly rolled over into another contract. This has left them unfairly tied into a contract which they had to pay a penalty fee to escape.
"This move by the regulator will help make it easier for customers to switch and get a better deal, and should help to make the market more competitive."
Communications Consumer Panel chairman Bob Warner also welcomed the move.
He said: "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."
As well as BT, other residential providers which offer ARCs include Adept Telecom, Axis Telecom, Eze Talk and iTalk, while TalkTalk Business, Titan Telecoms, and Optimum Calls offer ARCs to business users.
BT offers ARCs which renew annually, but contacts customers one month before the end to give them the opportunity to opt out of the automatic rollover.
The company said it was disappointed by the ban, but would immediately stop offering ARCs, ahead of the deadline.
A BT spokesman said: "We have worked hard to make sure that customers understand what they are signing up to, including how the renewal works and the charges that apply if they choose to leave early."
Ofcom will also require providers to move all residential and small business customers currently on rollover contracts to alternative deals, and its 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."
Ofcom chief executive Ed Richards - concerned over 'lock-in' mechanisms