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Auto-Renewals and Telecommunications: UK Ofcom to Ban ARCs (Automatically Renewable Contracts, Rollover Contracts) that Impose Leaving Penalties

By Andis Kaulins

Pinsent Masons Out-Law.com writes about Ofcom in the UK that:

"Rollover contracts with leaving penalties to be banned"

because they 1) increase consumer exposure to switching costs and, 2) lessen competition in the market.

These kinds of auto-renewal contracts are one of our major pet peeves as they are the standard way to do business in telecommunications and a host of other service industries in our own domicile and negatively impact the competitiveness of markets.

In Germany, customers who are tied into standard ARC contracts for mobile phones (usually 2 years) or a host of other services, which can include utilities, cable television, internet providers, etc. usually stick with their old products and/or services because it is just too much trouble and expense to make any change, and often, if a change is made because of a better competitive offer from the competition, it is made in the serendipity time frame of the small window that exists for opting out of contract renewal. If a competitor approaches you during that magic window, you might change. Otherwise not.

I recently opted out of a mobile phone contract in writing only to receive a reply that the opt-out could only be done in the last three months of the contract, writing or not, so I had to make a special note in my calendar to send a new opt-out letter six months later! A customer who forgets to do that is otherwise simply stuck then with the old -- usually no longer competitive -- contract.

Companies intentionally make it difficult for people to avoid auto-renewal because many surely "live" from just that business under the motto that "once the hook is in ....". 

We posted at LawPundit in the past about this problem at:

Misleading Practices in the Software, Hosting and Antivirus Business: GoDaddy, McAfee, Symantec and Microsoft

Full post as published by LawPundit on March 11, 2011 (boomark / email).