Think tank says ‘Big Three’ broadband giants face same anger as “Big Six” energy firms
Telecoms customers should be able to cancel contracts with a single click online, ending “subscription traps” that saddle households with high prices and poor service, a think-tank has said.
Telecoms consumers often suffer higher prices and poor service because politicians have “neglected” the need to promote competition and allowed big companies to dominate the market, according to the Social Market Foundation.
New rules making it much easier for customers to switch providers – and use new automatic switching services – should be introduced to boost competition in the telecoms market, the SMF said in a briefing paper on the state of competition in key British markets. Consumers should also have more control over their personal data so they can more easily know how much they are paying for, and using, their broadband, mobile, landline and pay TV services.
The think-tank made the recommendations in a new report warning that the market for broadband has become more concentrated in the hands of just three giant companies. Customer switching rates for mobile, broadband and landline contracts are lower than they are for energy.
The SMF analysed British consumer markets to see how much custom was taken by small groups of big companies. While many markets – including energy – have become more competitive as consumers switch providers more often, the telecoms sector has become more concentrated.
Following the merger of BT and EE, the four largest broadband providers now account for over 90% of the market – higher than any of the other eight industries examined by the SMF[1] (see Figure 1).
The mobile networks market has also become more concentrated in the hands of the large networks in recent years.
Big companies facing limited competition can sometimes charge higher prices and get away with poor service.
Scott Corfe, Chief Economist at the SMF said the dominant players in broadband – BT-EE, Virgin and Sky – now risk the same public and political backlash that the “Big Six” energy suppliers have suffered over prices and services.
Many broadband customers remain with the same provider for long periods, possibly because it can be hard to switch or because they are not aware of price rises over time. Recent Ofcom data showed that just 14% of “dual play” (landline and broadband) customers had switched provider over the past 12 months[2].
Sticking with the same supplier exposes customers to “loyalty penalties” where companies raise prices for long-standing customers because they believe customers will not leave. Recent research by Citizens Advice found that the average annual loyalty penalty in broadband stood at £113, slightly higher than the £110 seen in energy[3]. The loyalty premium for mobile contracts was even higher, at £264, with many long-standing customers paying for smartphones that they already own.
“As well as high loyalty penalties for long-standing customers, the telecommunications sector also ranks relatively poorly, compared with other industries, in terms of customer service” the SMF said. The July 2018 Customer Satisfaction Index, produced by the Institute of Customer Services, found that the telecommunications sector had the second lowest level of customer satisfaction, after the transport sector.
To boost competition in telecoms markets, the SMF made several recommendations:
- Ending subscription traps with a “click-in, click-out” rule for contracts. If consumers are able to subscribe to a broadband package, pay-TV or mobile contract online, they should also be able to cancel such contracts in the same way. Forcing people to call a supplier to cancel a contract creates unnecessary barriers to customer switching.
- Let consumers own their own data. Giving consumers power to easily access data showing their mobile and broadband usage, and the tariffs they pay, would allow the creation of much more sophisticated price comparison apps and other market-navigation tools. Using open telecommunications data, apps would be able to provide consumers with well-tailored recommendations for broadband and mobile contracts, based on an individual’s usage patterns. Following the energy market precedent of services such as Flipper or Look After My Bills, such apps could automatically switch users onto the best tariffs on the market.
- Automatically switch sticky customers to challenger companies in fixed-line telephony market – We propose an automatic switching scheme is introduced, where regulators automatically switch “sticky” customers on poor value fixed-line contracts to new, cheaper challenger providers.
Scott Corfe, SMF Chief Economist said:
“Politicians have talked a lot about the problems in the energy sector in recent years but they have mostly ignored problems in the telecoms markets. Too many consumers face difficulties switching provider that leave them stuck with the same supplier and paying much more than they should for their broadband, mobile, landline and pay TV contracts.
“Broadband, like energy, is now an essential service. It is crucial that we do more to ensure that the market is fully competitive and that consumers, particularly those on low incomes, are not being ripped off or trapped in bad deals.
“Without more competition to push them to offer customers a better deal, the Big Three broadband providers could find themselves facing the same sort of public and political anger that the Big Six energy firms have experienced.”
James Kirkup, SMF director said:
“Markets create and spread wealth, but they don’t always work as well as some of their fans would like. When big firms don’t have to compete for business, consumers suffer higher prices and worse service. Any politician who wants to get a better deal for consumers should be working to make markets more competitive.
“Ensuring Britain has the right rules in place to deliver more competitive markets once we leave the EU should be a much higher priority for politicians of all parties when they talk about Brexit and the future of the UK’s market economy.”
Notes:
For more information, to arrange an interview or see a full copy of the SMF briefing paper, contact the Scott Corfe, SMF Chief Economist, on scott@smf.co.uk or 07801 961729
Figure 1: Market share of largest firm in each consumer market
Source: SMF analysis. Time periods are not consistent across consumer markets, reflecting data limitations.
About the SMF:
The Social Market Foundation (SMF) is a non-partisan think tank. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well. We conduct research and run events looking at a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. The SMF is resolutely independent, and the range of backgrounds and opinions among our staff, trustees and advisory board reflects this.
The SMF retains complete editorial independence of its publications.
[1] The report examined eight consumer markets: cars, broadband, electricity, gas, personal current accounts, groceries, mobile telephony and mortgages.
[2] Excluding home movers
[3] Citizens Advice, “The Cost of Loyalty”