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Exit Fees: An analysis of the cost of leaving fixed telecoms contracts

27 March 2018

Broadband exit fees [ 320 kb]

In June 2017 Ofcom announced an investigation into the fees telecoms companies charge to consumers who change their provider before the end of their minimum contract period. This is the first substantial intervention the regulator has made in this area since reaching a voluntary agreement with industry to reduce fees in 2010.

Exit fees are a feature of many consumer markets and are not necessarily harmful to consumers. Providers often incur upfront costs when they begin providing a service, and calculate prices based on customers staying with them for a minimum amount of time. Charging exit fees allows telecoms providers to ensure they will recoup their costs without charging substantial upfront fees.

However, new Citizens Advice analysis reveals that consumers are paying 50% more to exit contracts early than they were in 2010. It is not clear whether this rise is because providers now face higher costs or are using fees to extract additional profit.

Evidence from the Citizens Advice Consumer helpline also raises concerns about the circumstances in which these fees are charged, including :

  • Charging exit fees even when consumers have been experiencing persistent service faults.

  • Applying the same level of exit fees to consumers who are in their second or subsequent contract with the provider, despite not needing to recover installation and initiation costs.

In this context, Ofcom’s investigation into broadband exit fees is particularly timely and important. In order to address the concerns raised in this briefing, any new agreement between Ofcom and industry should include clear guidelines on the circumstances in which it is acceptable to charge exit fees, as well as establishing a clear timeline for when Ofcom will review the level of these fees again to ensure any increases are cost reflective.

Industry should also commit to:

  • Report the cost of exit fees to Ofcom annually. A summary of this data should be published in Ofcom’s annual Communications Market Report.

  • Include clear, measurable quality of service thresholds in their terms and conditions and waive any exit fee if they are not met.

  • Charge consumers less for exiting a contract they have renewed or upgraded, to reflect the fact that nextworks do not need to recover installation costs.