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Ofcom Force BT to Cut UK Standalone Line Rental Costs by “at least” £5

Tuesday, February 28th, 2017 (8:49 am) - Score 3,560
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The United Kingdom’s national telecoms regulator has told BT to slash the cost of their line rental service by “at least” £5 per month for landline-only customers, which would affect more than 2 million of the operators’ customers (i.e. those who don’t take line rental as part of a BT Broadband bundle).

At the end of last year Ofcom announced a review of telephone line rental prices (here), which have risen sharply over the past few years (partly to help balance against the rising cost of service provision in other areas (e.g. broadband) and lost revenues elsewhere). In recent years the price has risen by between 25% and 49% in real terms, while the underlying wholesale cost has fallen by around 25%.

line_rental_costs_2015

However the regulator notes that customers who buy bundled services (e.g. broadband, mobile, line rental and or TV) often benefit from big discounts, although the same cannot be said for those who buy landline services on their own. This is often “felt most acutely” by elderly and vulnerable people who tend to shun bundles and stick with the same provider / standalone line rental product for years.

On average, landline-only customers have been with their provider for more than 20 years, compared to 8 years for phone with broadband customers, and 4 years for triple-play customers. Some 43% of customers with a standalone landline contract are aged 75+ and almost 80% (2.3 million) of the UK’s 2.9 million landline-only customers are with BT (we note that around 1 million of those take broadband from another ISP and of the remaining customers, the majority take either BT Basic or Home Phone Saver).

Sharon White, Ofcom CEO, said:

“Line rental has been going up, even as providers’ costs come down. This hurts people who rely on their landline the most, and are less likely to shop around for a better deal. We think that’s unacceptable.

So we plan to cut BT’s charge for customers who take only a landline, to ensure that vulnerable customers get the value they deserve.”

Ofcom found that BT’s “market power has allowed it to increase prices without much risk of losing customers” and other providers (e.g. Sky Broadband, Virgin Media, TalkTalk, Plusnet etc.) have then followed BT’s pricing lead by raising their own charges at a similar rate, which has become somewhat of an annual tradition. However only BT and Virgin Media already offer a cheaper social tariff (here and here).

The regulator’s solution is thus to introduce an additional protection, which will force BT to cut the cost of their line rental service by at least £5 per month (£60 per year); although they’re also consulting on a figure as high as £7 per month.

In practical terms Ofcom states that the £5 reduction would effectively return the cost of line rental to “2009 levels” and see the current monthly charge of £18.99 being slashed by -26% to just £13.99, although we’re not so sure about the 2009 remark because we recall it being about £12.50 in that year. Perhaps 2011 is closer.

BTs Line Rental Price History inc. VAT
2011 = £13.90
2012 = £14.60 (+5.04%)
2013 = £15.45 (+5.82%)
2014 = £15.99 (+3.5%)
2015 (Dec 2014) = £16.99 (+6.25%)
2016 (Sep 2015) = £17.99 (+5.89%)
2016/17 (Apr 2016) = £18.99 (+5.56%)

The planned price cut would NOT apply to landline services sold by BT Consumer as part of a bundle of services including broadband. In addition, Ofcom are proposing “safeguards” to “prevent BT from making future increases to line rental and landline call costs by more than inflation” (these safeguards would cover the line rental, call charges and the call package add-ons).

On top of that Ofcom are proposing to set a revised price for BT’s annual pre-paid line rental saver discount, which currently costs £205.08 (i.e. equivalent to £17.09 per month). Customers would get 10% off the annual cost of the new lower-price line-rental decided by Ofcom (e.g. should they reduce BT’s line rental to £13.99 per month, the annual pre-paid cost to customers would become £167.88 and with a 10% discount that’s £151.09).

Ofcom hopes that other operators would then follow BT’s lead, although at present the rule change will only be forced upon BT. However there’s a risk that BT may simply try to compensate for the lost revenue by taking it from elsewhere in their product chain, which for example could perhaps result in price hikes for those who take their broadband bundles. Consumers may also face some additional price confusion if the line rental costs differ between standalone, broadband bundles and pre-paid discounts.

A BT Spokesperson told ISPreview.co.uk:

“We will respond to Ofcom’s consultation fully when we have considered the detail. We take our responsibilities in this area very seriously and, unlike other companies, have many customers on special tariffs for socially excluded or vulnerable customers, including BT Basic, which still costs just £5.10 a month for line rental and calls, and Home Phone Saver.

Recently, we have frozen the cost of line rental for all of our customers who take a BT phone line. We have also been improving the service we provide and customers have benefitted from our multi-million pound investments in a faster fault repair service, the launch of our free nuisance calls prevention service BT Call Protect and bringing call centre work back from India to the UK.”

We’re also trying to confirm what impact this might have on consumers who only buy their line rental from BT, while taking broadband from a separate ISP and putting it on the same line. Ofcom’s wording suggests that the no-bundles rule only applies to BT Consumer and not third-party broadband connections on the same line. We are double checking this to clarify and will update shortly.

Otherwise Ofcom’s related consultation on these proposals will be open for responses until 9th May 2017 (here).

UPDATE 28th Feb 2017

Ofcom informs us that the proposed price cut would apply to all BT Consumer customers with standalone landline-only contracts, including customers who buy broadband from BT or “another provider under a separate contract“. This will certainly encourage some interesting changes in the market.

UPDATE 28th Feb 2017 @ 9:43am

Added a comment from BT above.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he is also the founder of ISPreview since 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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17 Responses
  1. dragoneast

    Interesting whether it’ll be time for those of us not on a bundle, but with broadband and line rental, to return the line rental element to BT, which at least would help them to offset some of the lost income.

    That’s not a level playing field, so why not just make a cheaper basic standard line rental from BT a requirement for everybody who needs a conventional landline? It could be included in a bundle with BT’s agreement but the ISP would just be the payment handler for BT. And best of all BT could be the single point of end-user contact for line faults. Simpler, and cheaper. And any special investigation charges would just be a matter between the customer and BT. Sort out the mess of Ofcom’s making at a stroke (well, almost).

    • dragoneast

      Once a Treasury civil servant always a Treasury civil servant, perhaps? Is Ofcom using its regulatory powers to support political ends: May’s “caring conservatism” in practice. Redistribution, gives those that want it a nice, warm and fuzzy feeling; all without costing the Treasury a penny, and frankly, doing anything to address the real issues of poverty. Enough to warm the cockles of any Chancellor’s heart, if he had one!

  2. gerarda

    The move would appear to be simply forcing the market to correctly price the line rental and other parts of the bundle.

    I cannot see why anyone in the industry would be surprised at this. If in a regulated industry you keep putting your consumer prices up when the underlying cost has not risen, eventually the regulator will have to act. Arguably they should have done so 3 or 4 years ago.

  3. DTMark

    Why does this appear to be being forced on only one provider?

    • Steve Jones

      Because the regulator only has power to apply price controls to operators who are considered to have “Significant Market Power” (SMP). None of the voice-line only operators have sufficient market share to come close to that.

    • gerarda

      Also the vast majority of the more vulnerable customers will be with BT as they will have had service from them since the days of rented black phones hard wired into walls

  4. Peter Taylor

    Does the definition of a BT landline extend to Plusnet, EE & John Lewis?

    • adslmax Real

      Yes it does, because BT own Plusnet

    • TheFacts

      Not convinced.

    • 125uS

      No, it doesn’t. This only applies to people who take the phone service from BT Retail or Consumer, whichever name they use these days.

      The other companies (including Plusnet) run their services using a combination of components bought from Openreach and BT Wholesale alongside their own capability.

      Only BT is considered to have significant market power and so Ofcom’s rulings (in this context) apply to them only.

    • gerarda

      Reading the consultation, I think probably not as it continually refers to the BT brand as being a reason stand-alone customers are still with them.

      In any event the numbers with stand-alone line rental from those three organisations is probably minimal

  5. GNewton

    I think it would make sense to allow BT to charge more realistic wholesale line rentals (at the moment they are too low). And then any consumer-facing ISP or telecom is only allowed to charge the same line-rental and then for their own services like voice telephony, broadband, video services etc.

  6. MikeW

    It seems to be beyond coincidental that we get this outcome shortly after the advertising requirements forced bundle-pricing to be clearer.

    In fact, without that change, I think BT would argue against this change quite strongly.

    I wonder what the knock-on effects will be? Will it see a rebalance between the landline and broadband components throughout all ISPs?

  7. Jonnyredhead

    Do you think this might have a knock on effect to those on just the ‘BT Basic’ land line product.

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