Will you be charged an Early Cancellation Fee for Broadband?
Exit fees, or cancellation fees as they’re often called, work slightly differently for broadband when compared to other household contracts, such as energy and mobile phones. They generally work in relation to how much time there is left on your minimum term, compared to something like energy, where there is one flat fee.
What is an exit fee?
Back to basics: exit fees are the associated costs for the consumer with cancelling your broadband contract before your minimum term has ended. Unlike in other industries, such as energy, where variable tariffs are commonplace, with no exit fees and no minimum term, broadband has a lot more initial costs for the supplier and thus they tend to lock their customers for a minimum term that allows them to recuperate costs.
By that logic, customers are penalised with fees if they want to exit the service before the broadband provider has recouped its costs.
A typical minimum contract length for broadband would be 24 months. So, when you are considering switching your broadband, make sure you are well aware of how long you need to stay in order to avoid exit fees. Any savings from switching to a cheaper company could easily be wiped out by the cancellation fees of the old provider.
Why are exit fees charged?
When you sign up for a broadband tariff there are a fair few costs associated with setting you up, such as installation, delivery and equipment. In labour and fees this can add up to hundreds of pounds, which means your provider starts off in the red when a new customer signs up. In order to recuperate these costs, they set a minimum term on your contract that allows them to break even and make profit on each customer. If a customer leaves before this minimum term, without the exit fee, the provider would lose a large amount of money on each customer that leaves early.
Bearing the above in mind, it makes more sense that exit fees are charged on a per-month basis relative to the amount of time left on your contract. Each company has different fees associated with different products, which means in order to find out exactly how much you are going to be charged, you’ll need to read your contract terms and conditions and get your calculator out.
Per month charge by company
As mentioned, the per-month charge for cancellation fees will depend on your tariff and the company that you are with. Some companies have schemes and policies in place that allow you to defer, reduce or clear your exit fees by taking on other products, but in the majority of cases, you will need to pay a per-month fee relative to the amount of time left on your minimum term.
Here is a table illustrating a variety of exit fees charged by four of the biggest broadband providers in the country:
| Tariff | Per month exit fee | Cost of leaving 9 months early |
|---|---|---|
| BT Unlimited Broadband (18 months) | £20.25 | £182.25 |
| TalkTalk Faster Fibre (18 months) | £16 | £144 |
| Sky Broadband Unlimited (12 months) | £7.24 | £65.16 |
| Virgin Media VIVID 50 Fibre Broadband (12 months) | £13 | £117 |
Source: Citizens Advice
As you can see, fees vary depending on the product, the speed of the internet and the equipment necessary for your service. Of the above examples, BT is by far the most expensive in terms of exit fees. For nine months left on your contract, you would pay £182.25, which is absolutely huge. It is very unlikely that by half way into your contract BT would still be -£182.25, but they will of course be looking to protect their bottom line in the form of a cancellation fee. Sky, however, looks more like a break-even exit fee, which is much more reasonable in comparison.
Do no-exit fee tariffs exist?
Although they are few and far between, there are broadband deals out there that do not have exit fees. This is what is generally referred to as a rolling contract. This would be a month-to-month style plan that would allow you to cancel at any time with a month’s notice with no fees being incurred. There is, however, a hefty setup cost that usually comes alongside these deals; however, as there is no protection for the supplier in the form of a minimum term.
Set up fees can range between £60-150 depending on the provider and the type of deal you’re taking out. We would not recommend that you sign up for a rolling contract unless you are only going to be in the house for a short amount of time and internet connection is an absolute necessity. If you can commit for 12 months, it is always better to go with a contract that has a minimum term and a fixed, lower price for that period. This will also go towards reducing the initial cost incurred for setup.
How are exit fees charged?
So, when you cancel your deal, you may think that it’s a good idea to cancel your direct debit with your bank, especially as this might give you a chance of avoiding your exit fees… think again! Your exit fees will be charged to you in your final direct debit, or in a separate debited payment after you have paid your final bill. If this payment cannot be retrieved by your provider, this will start the debt process, which can get pretty ugly when it starts being passed to debt collectors and the high court. You definitely want to avoid that from happening, just as much as having exit fees charged in the first place.