BY JOHN ELLIS, FINANCIAL ADVISOR
Price walking, also know as a loyalty penalty, is a form of price discrimination whereby longstanding, loyal customers of a service provider are charged higher prices for the same services compared to customers that have just switched to that provider.
The pricing strategy was recently banned by the Central Bank of Ireland in the general insurance industry but seems to continue in some areas like the telecommunications industry.
This week most customers of Eir and Vodafone will see their bills go up by 7.6% as the companies’ so-called ‘annual price adjustments’ take effect. It means hundreds of thousands of households are bracing themselves for yet more price hikes. This is due to the providers’ policy that bills go up each April by the annual rate of inflation as of January each year plus an additional 3%. Customers of Three see their prices go up by a flat 4.5% each April regardless of the rate of inflation.
According to Bonkers.ie the price hikes are controversial as they are tantamount to price signalling i.e. businesses making their competitors aware that they intend to increase prices which is supposed to be against the law under the Competition and Consumer Protection Commission own definitions.
So far though the competition authority has taken no action. Bonkers.ie are calling on the CCPC and ComReg to clarify their positions regarding the use of automatic price adjustments in the Irish market.
Other providers such as Sky and Virgin Media are also upping their prices in April. However, they haven’t committed to annual automatic price hikes for now. Sky is hiking its prices by an average of 4.1% on some of its products for example.
In the meantime, households are advised to shop around and look to offset the price hikes by switching to a new provider as there is still very good competition for new customers.
According to Darragh Cassidy, Head of Communications in Bonkers.ie, we are in the bizarre situation where telecommunications providers are engaging in both price signalling and potentially price walking even though price signalling is against the law and price walking has been banned by the Central Bank of Ireland.
He said: “The CCPC and ComReg should clearly state and explain their position on this as soon as possible. I feel they’re both asleep at the wheel here. I’m more disappointed at them for not doing their jobs properly than I am at the providers who have upped their prices to be honest.
“I understand that telecommunications providers need to invest heavily in their networks and will, like all businesses, have to increase their prices from time to time. But price signalling is ultimately bad for competition and bad for consumers and should not be tolerated in any form. It’s no coincidence that all the main providers now hike their prices by a similar amount and at a similar time each year.”
Despite the rising prices, there is still strong competition among all providers for new customers. Unfortunately, loyal customers are changed more for the same service while the prices on offer for new customers have remained relatively steady over the past few years. By switching customers could easily save €40 or €50 a month on their broadband and TV bills for an entire year.
According to Bonkers.ie “many of us will jump through hoops to shave €40 or €50 a year off our car insurance”. So, it’s a no-brainer to look at switching our broadband and TV contracts now.
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