End of ARC’s or Automatically Renewable Contracts

Ofcom’s ban on automatically renewable contracts (ARCs) or ‘rolling’ contracts came into effect on 31st December 2011. This means it is now unlawful for telecom providers to roll customers over onto a new contract without their permission. But what does this mean for small businesses?

Simply, if you are a consumer or a business with less than 10 employees, the new regime will give your business more control over how much you are paying for a business telephone and broadband package, more freedom to shop around for the best deal and will make it easier to switch providers.

The process used to be that thousands of customers with phone lines coming to the end of a 12-18 month contract would find themselves signed up to the same provider for another 12-18 months unless they actively opted out of the renewal in a specific time frame. This usually incurred a penalty charge.

Automatically rolling contracts tied customers into another contract without the customer signing anything. So telephone and broadband contracts across the country will now be much more flexible for customers and businesses with less than 10 employees.

Ofcom states that 15% of consumers were on these automatically renewable contracts. The ban came into effect because Ofcom was concerned the rolling contracts made it difficult for customers to switch providers and so there was less competition within the broadband and telephone market. The argued that the rolling contracts make switching unattractive to consumers as they are put off by the costs related to cancelling a contract.

BT disagreed with Ofcom’s ban stating that it didn’t think it hindered competition in the telecommunications industry. Ofcom investigated the issue and found many unhappy customers who felt duped into staying with their providers for another year.

Consumer watchdog Which? backed the ban, saying that telecom companies should focus on offering great value deals with top-notch customer service, so that their customers are happy to stay with them voluntarily rather than being tied in by over-restrictive terms and conditions.’

This informative business article was provided by Nadine Bourne of XLN Telecom.

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