Friday, 3 March 2017

Waking up

In October 2012, SKY announced that it would increase phone line rental charges by 18%. BT had already announced inflation-busting rises. Virgin and TalkTalk had already implemented way-above-inflation increases in line rental charges, but BT and Sky are the dominant domestic telecoms suppliers.  These new charges were almost double those of the lowest-cost provider. There was no justification for any price rise for line rentals at all. In fact, wholesale prices were falling.
I called on the Secretary of State for Trade and Industry and the competition authority (then the Competition Commission) to launch an investigation into the telecoms’ suppliers and, particularly, into landline charges. 1

I strongly made the point that increasing the unavoidable line rental charges meant that those who made the fewest calls – typically pensioners on the lowest incomes – were getting the highest percentage increases in their bills.

Further, I was sharply critical of the suppliers’ claims that there was a ‘highly competitive market’, asking how it was that BT and Sky managed to arrive at the same charges for daytime calls and connection fees. I said that customers were being taken for a ride.

But, what was the response of the Conservative Minister, Ed Vaizey, and OFCOM then? They said that they believed the retail market was competitive and

“… for Ofcom to open up an investigation in this area, it would need evidence of an abuse of a dominant position or evidence of collusion or anti-competitive agreements.”

They refused to budge from this position, despite the evidence staring them in the face.

For more than four years, landline charges rocketed above inflation and many telecoms suppliers have made a fortune at our expense.

Last December, Ofcom announced a review 2 into “unnecessarily high charges paid by the estimated two million households who pay for a standalone landline service…. Ofcom is concerned that (these) people are not being served well by the market.”

The regulator finally admitted that all the major landline providers had raised charges significantly since 2010, by between 28 per cent and 41 per cent in real terms. This was despite benefiting from a 25 per cent fall in the underlying wholesale cost.

Bluntly, customers had been taken for a ride whilst OFCOM and the government had been asleep on the job.

Now, OFCOM has announced 3 that “More than two million people who buy only a landline telephone service from BT would see their monthly bills cut by at least £5 per month…”
The fact that OFCOM has acted so quickly on some landline charges after such a short investigation simply demonstrates the significant scale of the market abuse that has been going on for so long.
As OFCOM now confirms “Landline-only customers are particularly affected by price hikes in telephone line rental. Major providers have increased their line rental charges significantly in recent years – by between 25% and 49% in real terms. This is despite providers benefiting from around a 26% fall in the underlying wholesale cost of providing a landline service.”

OFCOM’s proposals mean that BT customers with only a landline, currently paying £18.99 per month for line rental, will pay no more than £13.99 – a reduction of at least 26%. This cut returns the cost of line rental to 2009 levels in real terms, although there isn’t a refund for the years when many customers have been fleeced of some £300-400 each.

OFCOM has not explained why its proposals only relate to BT. It is clear that other dominant telecoms suppliers have been pursuing the same pricing policies. What action is to be taken against them?

Neither has OFCOM yet agreed to extend its investigations into all landline pricing, including those forming part of bundles of services. It is very clear that the landline price within bundled services has increasingly formed a larger part of the total charge. Yet, as OFCOM confirms, this is despite a 26% cut in the wholesale cost of landlines.

I’m pleased that OFCOM has woken up at last.

Now that it is awake, it needs to go further by (1) confirming that it is continuing to investigate the significant increases in the landline-only charges of other suppliers, and (2) extending the investigation to all landline pricing, whether standalone or charged as part of a bundle.

1 LINE UP – we’re being taken for a ride, 16th October 2012,