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ARTICLE · 04 NOVEMBER 2011

An End For Automatic Renewals

Eversheds Sutherland
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Ofcom has announced that it will prohibit automatically renewable contracts for residential and small business customers in the fixed voice and broadband sectors.

United KingdomMedia, Telecoms, IT, Entertainment
James Walsh
James Walsh
Charlotte Walker-Osborn
Charlotte Walker-Osborn

What? Ofcom has announced that it will prohibit automatically renewable contracts for residential and small business customers in the fixed voice and broadband sectors.

So what? Automatically renewable contracts ("ARCs") add a new minimum contract period ("MCP") to the term of the contract at the end of each MCP if the customer does not inform the provider that he or she wants the contract to expire at the end of the MCP. The customer is usually expected to pay an early termination charge to end the contract before the current MCP has expired.

Ofcom estimates that about 15 per cent of all fixed voice contracts in the residential sector are ARCs. Econometric analysis commissioned by Ofcom suggests that ARCs have a harmful effect on competition as the early termination charges disincentivise consumers from switching providers.

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