Ofcom has banned ‘rollover’ landline and broadband contracts amidst growing concerns that they lock consumers into long-term contracts with little benefits.
Apparently, these contracts automatically sign customers to a new minimum duration contract when their previous contract expires, unless they specifically choose not to renew. And as if that was not bad enough, the contracts include heavy fines on those who abandon the contract midway.
The telecom regulator announced on Tuesday that all rollover arrangement processes, also referred to as the ARC (automatically renewable contracts) will be withdrawn from all small business as well as residential customers starting December 31st 2011.
Ofcom also asked service providers to move all the users of such arrangements to an alternative deal, and directed them specifically to remove all ARCs by the end of 2012.
"Our research, in particular, the econometric analysis that we commissioned on the switching behaviour of BT customers, indicates a clear causal link between ARCs and reduced levels of consumer switching," Ofcom said in a statement, according to a Zdnet report.
"We believe this effect stems from the opt-out nature of the process for contract renewal and that any example of such a contract is likely to be harmful to consumers and to effective competition."