Ofcom launch review of landline fees

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OFCOM are launching a review into standalone landline prices, after they discovered that the price of line rentals had risen by between 28% and 41% in real terms since 2010.

simon chandler
By Simon Chandler

This compares to a "25% fall in the underlying wholesale cost of providing a landline service", a fall that makes Sky's maximum increase seem all the more questionable.

And it becomes more questionable still when these rises, according to Ofcom, primarily affect "elderly and vulnerable people, who make up a significant proportion of standalone landline customers in the UK".

This means their review isn't going to address customers who bundle their line rental with broadband, not least because they believe there's already enough competition in this area. It also means their review won't end up proposing the end of all landlines, since this would hit needier demographics even harder than the price rises they're investigating.

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In justifying their refusal to examine broadband-landline bundles, Ofcom referred to the fact that the Advertising Standards Authority (ASA) have recently changed the rules so that internet service providers (ISPs) can no longer hide the line rental cost in the small print.

They believe this move "may benefit consumers taking bundles, and may reduce incentives to increase line rental charges".

However, they also believe "it is unlikely to benefit landline-only customers", due to a lack of competition in this sector.

As such, they're looking specifically at what they can do to protect these customers in particular, with BT providing much of the focus of the review [PDF] into the wholesale landline market that prepared the ground for the latest one.

With regards to the wholesale market, Ofcom "propose that BT has SMP [significant market power] in the UK", just as they do with broadband.

This means that they have enough of a dominant hold on the landline market for Ofcom to be concerned that they're "setting excessive charges", which "lead to higher retail prices than is efficient and result in a loss of welfare by consumers".

Because of these concerns, Ofcom will consider various remedies to BT's SMP status, such as allowing their rivals to have greater access to their networks and ensuring they don't discriminate against competitors.

They'll be consulting on such measures until February 2017, whereas they expect to publish their initial findings on the retail market in "early 2017".

Apologies

Yet even before this vague deadline, at least one company have responded to the new review with a commitment to freeze prices for their more vulnerable customers.

This was Virgin Media, who as an apology for recently increasing their rental charges to £19 per month have vowed to "freeze line rental for its elderly and disabled customers who rely on their home phone the most".

And while BT themselves aren't introducing any new plans or price freezes, a spokesperson for the company told us, "We already offer a number of products which represent significant savings on standard line rental."

They added, "For example, our Home Phone Saver product and for vulnerable customers our BT Basic service, which costs just £5.10 per month."

Given that providers like BT are often sensitive to the needs of the public, it's always worth customers contacting their ISPs or phone companies if they feel as though they can't afford the line rental charges.

Unpopularity contest

Still, it may be argued that these are tokenistic gestures that don't spare the vast majority of customers unjustified costs.

In fact, they may be doubly unjustified insofar as an increasing proportion of people aren't using their landlines.

For instance, a survey by Relish recently found that 60% of Brits take a home phone only so they can have broadband.

This percentage was corroborated by Ofcom, who state in their wholesale landline review that "only 15% [of customers] identified making or receiving calls as the most important use of their landline".

No more landlines?

At first glance, this would suggest that the best solution to the problem of rising landline prices would simply be to get rid of landlines altogether, since increasingly few people use them.

However, this would be somewhat shortsighted for two reasons.

Firstly, Ofcom point out that, while the 10% of customers who have phone-only services will decrease as a proportion of the population over time, "the absolute number of such consumers is likely to remain significant for the foreseeable future".

Secondly, it's very likely that, if we are "looking at the beginning of the end" and those people with bundles dispose of their landlines, those with phone-only deals would suddenly become responsible for financing the remaining networks on their own.

And rather than making their landline bills cheaper, it's very likely that this would make them considerably more expensive, since as Ofcom argue, the 41% rise in rental fees "may also reflect the decline in revenue from calls".

This is why the regulator's review into how prices might be kept down is ultimately a good thing, since it promises to keep the landline market alive and affordable for those who truly need it.

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