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EY Report Warns UK Broadband ISPs Must Avoid “race to the bottom”

Thursday, September 22nd, 2016 (12:01 am) - Score 718
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A new report from global business and tax advisory firm EY has warned that 32% of UK consumers see little difference between the bundles offered by broadband ISPs, which risks encouraging a “race to the bottom” where the only perceived differentiator is price.

The report (‘Navigating the Bundle Jungle‘) appears to be based on consumer insights generated through an online survey of 2,500 UK people conducted in April 2016. This has been designed to explore end-user attitudes toward residential bundling of communication services (the data is compared with a similar study from 2013).

The study found that 25% of respondents have expressed a willingness to switch ISP in 2016 (up from 21% in 2013) and 43% of households apparently agreed that the desire to migrate was being driven by a combination of lower prices and trust levels with service providers. For example, 55% said they’d only be interested in a Mobile bundle if it offered significant price savings.

Furthermore, one in three households (32%) see little or no difference between providers, despite the ever widening range of offers on the market. In keeping with that, 40% of people don’t know the advertised speed of their connection and 28% of respondents find it difficult to locate a bundle that meets their needs.

Adrian Baschnonga, EY Lead Telecommunications Analyst, said:

“There has never been as much choice in the market for bundle customers, yet our report demonstrates that consumers remain confused and frustrated by what is on offer.

For example, nearly half of the households surveyed find that introductory offers make it difficult for them to choose the best value package. This is despite the fact that 43% of households agree that these offers play a role in their choice of broadband service provider.”

Stuart Orr, EY Partner (Telecoms), said:

“Even though there’s greater segmentation and more targeted offerings than ever before, consumers see little difference between providers. This suggests the industry could be moving towards a model similar to the utility market, where the only perceived differentiator is price.

Avoiding that ‘race to the bottom’ will come down to the value of the brand, particularly in terms of trust, customer engagement and service.”

On the other hand the study shows that overall levels of satisfaction have risen in the last three years. The aggregate proportion of respondents who are “very” or “quite” satisfied has increased from 65% in 2013 to 70% in 2016. However, the proportion of very satisfied households has slipped from 30% to 27%.

ey_2016_report_bundle_satisfaction

Households were also found to be “marginally happier with their broadband speeds” in 2016 than in 2013. However on this point the report claims that 62% of households now have broadband speeds above 25Mbps (up from 33% in 2013), yet Ofcom’s own data suggests that around 57% of broadband lines are still based on slower ADSL / ADSL2+ services (superfast Cable and FTTx solutions make up the rest).

Elsewhere the majority of households (61%) agreed that the reliability of their broadband connection is more important than service speed, which is despite the concerted efforts of some operators to differentiate on broadband capability. Similarly only 19% of respondents say they would sacrifice their level of customer service for lower broadband prices.

Finally it’s perhaps worth pointing out that, based on Ofcom’s data, only around 10% of consumers did actually end up switching provider last year and that’s somewhat less than the 25% that EY’s study suggests have a expressed a “willingness” to switch.

Based on the research, EY has segmented UK households into the following seven distinct segments. Clearly there is no one-size-fits-all approach to meeting consumer needs.

The 7 Distinct Segments

· Digital Devotees – Comprise 16% of the broadband household market. They are young, tech-savvy and content-hungry, they also have a high propensity to switch providers.

· Content Light Bundlers (17%) – Sophisticated users who understand what they are buying. Unwilling to pay for sport and prefer to have free/basic TV as part of the bundle.

· Serious about sport (14%) – They are focused on being able to watch sport and are willing to pay for it. To a lesser extent, they are also willing to pay for other content.

· Disgruntled users (17%) – They are moderately interested in new technology but feel that purchasing bundles is complicated and confusing. Only 11% of them are very satisfied with their broadband provider, compared to 27% overall. Two in three find introductory offers confusing, compared to 49% overall.

· Bargain hunters (14%) – They are knowledgeable, highly price-sensitive and very value-focused. This segment has the highest proportion of those agreeing that their household spends as little as possible on communication services, at 71%.

· Loyal bundlers (12%) – They are highly loyal, with the highest average tenure with current providers and the lowest switching propensity. They are relatively light users of the internet, using it when they have a specific reason and restricting themselves to familiar websites.

· Functional users (11%) They are light users of the internet. They find purchasing communication services difficult and don’t understand broadband speed or how it relates to the internet, with 39%, the highest of any segment, agreeing with this statement.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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3 Responses
  1. Avatar DTMark

    The “distinct segments” list is telling. Where’s “prepared to pay more for faster speeds”, or “performance user”?

    The kind who persists with 4G because it’s so much faster then BT’s “fibre” and we can’t get cable?

    When I look at VDSL, the report seems to find the right conclusions. Beyond cable, I see a plethora of people selling broadband that we could buy here, but only two ISPs as such – BT and Talk Talk – are at the exchange.

    The infrastructure that matters most is identical. Therefore, even as a “power user”, I see very little point in having, say, AAISP, as opposed to Sky. The key determinant is price.

    Yes, AAISP might buy a little more capacity. But since they sell over such a lacklustre network with the same bottlenecks as everyone else on it, the chance of it dramatically outperforming PlusNet on a daily basis isn’t great, and even if it does, not by a big margin because the ceiling of attainable speed is so dismal anyway.

    So the report simply speaks the obvious. This is the market we have created, a faux-market at a retail level only with some differentials in implementation which might be understood by technically minded users which may or may not make any real difference to what can be attained if you can only get the BT network where you are.

    • I suspect that’s what they might have meant by “Digital Devotees,” but of course the market is always more complicated than a bunch of simplistic labels.

    • Avatar New_Londoner

      @DTMark
      The data presented by Andrew at Think Broadband in his recent post suggests there are quite marked performance differences between ISPs, that the quality of the broadband service does indeed vary.

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