Ofcom’s BT Line Rental Cut is a Headache for Optional Broadband ISPs

Last week’s agreement between BT and Ofcom to drop the provider’s retail line rental price from £18.99 to £11.99 a month for landline-only customers (here), which could soon be adopted by others, may have created an awkward problem for ISPs that still sell optional broadband services.

Some years ago, before broadband and phone bundles became a big thing, it was fairly normal for most consumers to buy their phone line rental and broadband products separately (broadband was essentially an optional add-on that you stuck on top of the line). But gradually the attraction of bundles, which allow consumers to save money by combining several services over a longer contract term, has changed all that.

Nevertheless there are still plenty of ISPs, usually smaller providers, which continue to sell broadband as an optional add-on. In other words the broadband and phone line rental services can be taken from completely different providers, if so desired. However this flexibility faces a challenge from Ofcom’s recent agreement with BT.

The regulator’s decision to cut BT Retail’s phone line rental price for landline-only customers (mostly effecting elderly users that have yet to adopt broadband) is, on the surface, a good pro-consumer call. Part of the reason for that is because the underlying wholesale cost of line rental has actually fallen in recent years while the retail price has surged by between 23% and 47% in real terms.

There are of course many reasons why wholesale and retail prices have diverged so much (e.g. helping to mask rising broadband prices and balancing against a decline in calls / revenues) but we won’t detail them again today. However the competitive market means that it’s still possible to find providers that offer cheap line rental (list) for around £10-12 per month

Despite this, a few ISPs are concerned that the change could result in some of BT’s landline-only customers being discouraged from adding broadband to their line via a different provider. The reason is because a BT customer who attempts do this would find that they are no longer eligible for the line rental discount.

Adrian Kennard, Director of AAISP (Andrews & Arnold), said:

“I am all for competing fairly, really. I fully understand buying separately can cost more, and if we are one part of that then fair enough. I don’t mind competing in bundles. But to make it so that someone buying separately not only has the extra overall cost of doing that, but also gets fined by one of the providers, that is crazy and really seems anticompetitive to me.

We already offer a phone line with no calls for £10 inc VAT per month to support broadband from us. So moving line to us and taking broadband avoids the £7/month price hike, which is good. We don’t try to compete on price, but the bundle does not work out too badly even so. But why should people be effectively forced to move the phone line part. We offer no calls, so people that want incoming calls or occasional outgoing calls will not find what we offer suitable. We do offer a package to move a BT number to VoIP at the same time, which helps address this in part. But we don’t want to force people to move their lines to us if they don’t want to.

If we can tell a customer is on this special tariff when ordering, we’ll add a warning about the BT fine. I doubt we’ll be able to tell though as I don’t think OFCOM really thought this through somehow.”

The regulator’s argument is that the market offers plenty of choice (competition) for those who go looking. Indeed there are several ISPs that offer both broadband and phone line rental together (bundle), often for not much more than if you were to buy just the phone line service on its own. But it does still somewhat work against smaller third-party providers that sell broadband as an optional add-on to a BT phone line.

Ofcom Statement (1.14 and 1.15)

Like voice-only customers, split purchasers have suffered increases in line rental charges in recent years without significant offsetting benefits. However, split purchasers are typically younger and more technologically literate, and, by definition, have internet access which allows them to access alternative offers more easily.

Unlike voice-only customers, split purchasers have a wide range of choices available to them, such as dual-play (telephone and broadband) bundles, which should allow them to seek better value for money from providers if they increase their levels of engagement.

To address the detriment faced by split purchasers we have decided that it is more appropriate to allow time for split purchasers to become more actively engaged and potentially switch to dual-play bundles where that is a better option for them, than to include them in a price control at this stage.

Split purchasers may benefit from being informed that, in many cases, they are not obtaining good value for money and can find themselves a better deal.

At this point only BT has adopted the agreement, although Ofcom has hinted that some of the other big ISPs may follow suit. Once that happens then smaller ISPs offering optional broadband services may feel as if they need to refocus on offering a bundled solution, which in turn could run the risk of reducing rather than expanding consumer choice and flexibility.

On top of that there may also be some grey areas to get around this problem, such as if the customer takes broadband via a 4G Mobile, Fixed Wireless Broadband, shared WiFi, Satellite service or even a completely different fixed line network (e.g. Virgin Media’s cable platform or an FTTP/H ISP like Gigaclear). Not to mention some general issues with existing contract terms and clarity of pricing in product advertising (these should be answered once BT’s new pricing goes live from April 2018).

Few decisions by Ofcom ever seem to result in a neat one-size-fits-all solution where everything works and everybody agrees, which is now somewhat par for the course in this highly competitive market of often complex rules. We can also appreciate that Ofcom tends to focus on the biggest providers (reflecting around 90-95% of consumers), but they sometimes do this to the detriment of smaller players.