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Ofcom Shows the Gap Between Wholesale and Retail Line Rental Prices

Wednesday, February 10th, 2016 (11:32 am) - Score 1,805

Ofcom has today published their tenth annual Consumer Experience Report, which among other things helps to reveal the growing gap between what UK ISPs pay for their line rental and how much they charge their subscribers.

Interestingly Ofcom’s latest data doesn’t appear to make the link between larger ISPs shifting their broadband costs onto line rental, often in order to make the Internet side of their service look more attractive to potential consumers (the line rental cost is often shown in smaller advertising print, although the ASA are trying to tackle that).

Instead the regulator largely puts the high price of retail line rental down to falling voice call volumes (down 37% between 2009 and 2014) and a shift from usage-based to access-based pricing (i.e. as consumers purchase call bundles which include unlimited calls, rather than paying on a per-call basis).

However this only tells part of the story because a lot of big ISPs used to bundle free evening and or weekend calls with their line rental, but today most entry-level packages have dropped that and returned to per-call pricing and yet there were no retail price drops to compensate.

Similarly we should not underestimate the competitive impact of cheap mobile contracts, which is another thing that Ofcom doesn’t mention. We looked into some of these issues in more depth via our recent article – Examining the Changing Cost of UK Phone Line Rental and its Future. Take note that the wholesale price is usually +vat and retail inc. VAT, although Ofcom fail to clarify this below. ISPs also have to add a profit margin and voice (phone) service features, which pushes the cost up further.

line_rental_uk_prices_2010_to_2015

Apparently around 10% of UK households have a fixed voice service but no fixed broadband (most of them are with BT) and as such Ofcom says they don’t benefit from competition in the broadband market, although this overlooks the fact that a lot of standalone phone providers sell line rental for less than the big ISPs. However we do agree with Ofcom that voice-only customers have fewer options for switching due to the enforced bundling by big ISPs.

The report further notes that the average monthly price of a residential fixed broadband connection (using data from H1 2015) has moved from £16.36 in 2013 to £17.83 last year, although this doesn’t necessarily reflect which packages consumers are actually choosing to use (cheaper “unlimited” deals tend to be more popular).

Otherwise Ofcom’s report doesn’t contain a lot of new data, although it does confirm that overall consumer satisfaction with broadband providers remains fairly steady at 83% in 2015 (down from 85% in 2014), while mobile was flat on 89% and fixed line (phone) fell to 88% from 91% in 2014.

Finally we also learn that around 10% of mobile consumers have switched operator in the past 12 months, which is roughly the same level as fixed line providers and fixed line broadband. In all three cases this represents a slight 2-3% rise in switching activity from 2014’s low period, although it’s about level with 2013.

Leave a Comment
6 Responses
  1. Avatar Steve Jones says:

    On point about that graph is that it exaggerates the markup, as the retail line rental prices include 20% VAT whilst the wholesale rates exclude it. Also, I don’t thing that adding phone, even in brackets, is a very good guide. It’s simply the cost of the line. The phone service is now essentially a free service thrown in with the broadband (which you can see at WLR & MPF wholesale costs have essentially converged).

    I know there’s still this rather odd arrangement that, with shared loop unbundling, the voice provide is paying for almost all the line cost, but that’s an accident of history and something of a distortion.

    Incidentally, of those 20% voice only fixed lines, most of which are with BT, how many are on the social tariff and get BT Basic (which is £5.10 a month and includes a call allowance)? There’s also a BT Basic+Broadband service at about £10 per month. Both include the line rental which means they are loss-making as it’s considerably below wholesale rates, especially with VAT included. I believe that BT Consumer a required to offer the BT Basic service (at least the voice part) to qualifying customers by regulatory requirement.

  2. Avatar Diggory Laycock says:

    “because a lot of big ISPs use to bundle free evening”

    ‘Used’ perhaps?

  3. Avatar Ignition says:

    This must be a part of that superb, competitive market that Ofcom keeps congratulating itself on.

    1. Nice to see the regulator paying attention to graphs that I’ve published before.

      Perhaps they’ll consider what impact very low cost wholesale pricing means for the ability to invest in infrastructure and alternate infrastructure operators to be able to compete and offer entry level packages as well as mine is bigger than yours packages.

    2. Avatar Ignition says:

      Perhaps a little optimistic that one. Unsure if there’s political capital in that kind of approach, even if it is a smart one.

    3. Avatar dragoneast says:

      Hopefully Ofcom might be looking for a new boss soon. Could you both get your applications ready. You couldn’t do any worse, could you?

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