Britain's telecom regulator Ofcom proposed banning inflation-linked price rises in the middle of customers’ mobile and broadband contracts, saying that the practice was unfair on consumers and hampering competition.

Shares in London-listed telecoms companies BT and Vodafone fell 3% and 1% respectively on the proposed ban, as they would no longer be able to impose such extra charges, putting them on the hook to absorb inflationary risks.

Ofcom said that it wanted to introduce a new rule to require any future price rises to be written into a contract in pounds and pence at the point of sale, giving consumers more certainty over what they will pay.

Mobile providers have been tagging extra charges onto contracts to offset inflation, which peaked above 11% in October 2022 but has been falling this year, and Ofcom said on Tuesday that half of mobile contracts were now subject to inflation-linked price rises.

For broadband customers, it was four in ten, and it said it expected the numbers to grow as Britain's other big providers, Three and Virgin Media also sought to apply in-contract rises to more customers this year and next.

"We have provisionally concluded that inflation-linked mid-contract price rise terms can cause substantial amounts of consumer harm by complicating the process of shopping for a deal, limiting consumer engagement, and making competition less effective as a result," Ofcom said in its statement.

The regulator said it would now consult on the new policy before publishing its final decision in spring 2024. (Reporting by Sarah Young; editing by James Davey)