Ofcom has intervened to cut the bills of loyal landline-only customers
There’s more to do to make sure loyal customers aren’t unfairly penalised on broadband and mobile plans
This morning, we were pleased to see Ofcom’s announcement that people who pay for a voice-only landline telephone connection with BT will see the costs of their landline slashed by 37%. This is a saving of £84 each year.
The regulator reached the agreement with BT after it found that these people have been paying too much since 2010, particularly when compared to customers who buy landline, broadband and pay-TV services as part of a bundle. This is a welcome development for customers who will see their bills fall.
Ofcom found that more than 2 in 3 landline-only customers are aged 65 or over. More than three quarters have never switched their provider. There isn’t much competition in this part of the telecoms market, and customers are unlikely to switch. That means BT have little incentive to ensure that they keep prices low. Other major landline providers have followed BT’s lead, raising their prices by between 23 and 47%.
Loyal customers pay more across the mobile and broadband markets
Landline-only customers are not the only ones being penalised for their loyalty. Our research shows that loyal customers pay more across a range of essential markets — including mobiles and broadband.
Just last week we highlighted the loyalty penalty paid by mobile phone customers on the 3 largest mobile phone providers. People who pay for their handset and service charge in one monthly payment — and don’t take action at the end of their contract — overpay by an average of £22 a month for a phone they have already paid off.
Older people aged 65 and over are more likely to pay the mobile loyalty penalty. Nearly 1 in 4 (23%) stay in their handset-inclusive contract for more than 12 months past the end of their fixed deal, compared to a little over 1 in 10 (13%) of younger people.
Broadband customers face a loyalty penalty too — an average of £113 for every year they stay in their contracts after their initial contract period ends. Older customers aged 65 and over are twice as likely to have been on the same broadband contract for more than 10 years.
Ofcom’s move is welcome — but it can do more
By cutting costs for landline-only customers, Ofcom has taken an important step to protect loyal customers in this part of the telecoms market. It’s important to note that people who buy their landline connection from BT and a broadband connection from another service provider will not see their bills fall. BT has said it will engage those consumers to ensure they are aware they could save by purchasing bundled broadband and landline services.
This may not be sufficient to ensure that these customers are not unduly penalised for failing to switch. Ofcom should therefore continue to monitor the loyalty penalty in this part of the market, and take further action if required.
The regulator also has work to do to ensure that loyal customers aren’t unfairly penalised in the broadband and mobile markets. One way to do this is to put pressure on mobile phone companies to reduce their customers’ bills at the end of their minimum contract period. That means they aren’t charged for a phone they already own — and Ofcom should force mobile phone companies to do this if they don’t agree to act quickly.
For broadband customers, companies could do much more to improve awareness of the loyalty penalty. Smarter, timely notifications would help. Clearer pricing in advertisements and price comparison websites would also improve awareness.
We also want to see other regulators follow Ofcom’s lead in clamping down on the loyalty penalty. Early next year, we’ll publish a report which presents our evidence on the extent to which loyalty is penalised across essential markets and sets out the steps regulators can take to protect people.
