Are connection charges creeping back into broadband?
ISPs had mostly stopped applying connection charges to new broadband contracts, but they’re starting to reappear
In technology, as in life itself, it’s common for old concepts or ideas to return to prominence.
The recent renaissance in iPods and even cassette players is evidence that good technologies can endure.
However, sometimes a reprised concept is less welcome.
Broadband connection charges are a case in point.
In the frustrating yet exhilarating early ADSL days, it was commonplace to pay activation fees, before market competition killed off this stealth charge in the early 2010s.
Company A couldn’t charge an account activation fee if Company B was absorbing those up-front costs (or dispersing them throughout a contract period), rather than passing them onto consumers.
By 2017, we were advising BroadbandDeals readers that there were generally no connection fees, though new providers might levy an account setup charge on the first bill.
Sadly, a decade later, it seems connection charges are once again creeping back into broadband contracts.
So why is this happening? What does it mean for consumers, and are there ways to avoid an additional surcharge on switching ISP?
A game of monopoly
When it was the telecommunications industry monopoly holder, British Telecom could charge as much as £140 to install a new residential phone line.
With its monopoly position long since abolished, fierce competition in the home broadband sector ensured setup costs were absorbed by ISPs of all sizes.
Yet in tandem with its EE and Plusnet subsidiaries, BT announced a few weeks ago that they would be reintroducing connection charges (referred to as activation fees).
The reason for this, as with so many recent corporate announcements, involves soaring operating costs.
The WiFi 7 routers and hardware supplied by ISPs have become increasingly expensive, with the cost of some components trebling in a year.
Staffing costs are also rising rapidly, while ever greater taxation is further eroding profitability.
Even if ISPs aren’t levying activation fees, that doesn’t mean setting a new customer up with a broadband contract and hardware is cost-free.
Even if a supplied router is returned at contract’s end, it could be out of date or unfit to be reused.
Consequently, BT and EE customers will be charged a one-off £30 activation fee, while Plusnet (a budget brand often using older hardware) will levy a £20 fee per new account.
Is this going to become more prevalent?
Despite losing its monopoly four decades ago, BT remains the UK’s largest ISP.
Where it leads, other ISPs may follow, since they’re all enduring rising operating costs.
However, it’s unlikely to become universal, especially as the increased adoption of fees among sone ISPs will enable their competitors to use “no activation fee” as a marketing hook.
Since connection charges often revolve around hardware, ISPs may begin to encourage consumers to buy their own broadband routers.
Already, one full fibre ISP is offering to reduce monthly broadband costs by £3 if UK customers have their own device.
This may quickly morph into waiving connection fees rather than reducing monthly subscription costs, though technical support could be complicated by niche hardware.
The third-party router market is competitive, with some surprisingly sophisticated products, though proprietary full fibre networks may not be compatible with third-party hardware.
In time, there could be options to spread up-front connection costs across the duration of a broadband contract, just as mortgage setup fees are often rolled into monthly repayments.
ISPs might end up charging connection fees on shorter no-contract broadband or one-year policies while absorbing them on longer two-year agreements to encourage people to lock in for longer.
Consumers are also experiencing soaring grocery costs, fuel and energy price rises, stagnant incomes (in the private and third sectors) and costly rent/mortgage payments.
If ISPs routinely begin charging activation fees, it might discourage people from switching contracts, especially if modest monthly savings are being counterbalanced by up-front charges.
That would be a disaster for the industry, undermining concerted efforts by Ofcom and others to simplify and encourage switching over recent years.
It will be interesting to see whether other ISPs follow BT’s lead, increase monthly contract costs, or continue to offer services at existing prices.
