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CEO of UK ISP BT Warns of Unsustainable Social Broadband Tariffs

Monday, Nov 28th, 2022 (11:37 am) - Score 6,264
money for broadband in uk homes

The CEO of BT’s Consumer division, Marc Allera, will this week warn the Government’s Digital Infrastructure Minister, Julia Lopez, that the improved and cheaper social broadband and phone tariffs that they’re now offering to customers on benefits (Home Essentials) will eventually become “unsustainable” without support.

Social tariffs are typically only available to those in receipt of certain state benefits (e.g. Universal Credit), which can vary between providers. Prices for these tend to start at around £15 per month (usually includes installation and a router) and they typically offer “superfast” (30Mbps+) or better speeds. In BT’s case, their entry-level 36Mbps tariff is roughly half the price of their equivalent commercial package (i.e. it’s currently around £15 cheaper, albeit varying by discounts).

The packages are extremely useful for those who have fallen on hard times, as is sadly the case for all too many people today, but they do also carry a cost for operators and that financial drag will only increase as more effort is put into boosting take-up. Ofcom has estimated that, out of 4.2 million households in receipt of Universal Credit, some 136,000 had taken a social tariff (3% of those eligible), which is up from 55,000 six months earlier.

The Government and Ofcom have made no secret of their desire to see more ISPs offering social tariffs (here) and quite a few providers have now followed suit. But as we’ve warned before, this approach only works so long as the take-up of such packages remains low and is thus manageable.

As the provider that currently attracts 85% of social tariff users, BT faces the largest impact and claims that the government’s desire to get millions of people to adopt such plans could cost the industry £2bn per year (this figure assumes 100% adoption) – roughly equivalent to the profit BT made last year. But the cost impact will vary between providers’ too, so take that £2bn figure with a pinch of salt.

Marc Allera said (The Guardian):

“We feel the model in its current form is unsustainable, especially with the numbers [of sign-ups] the government is wanting to drive. We are asking to work more closely with government on what can be done to overcome this, and whether we should look to introduce greater central funding, like in the energy market, to help those that need it the most.”

The onus is currently on ISPs – at least those that offer such tariffs – to do a better job of promoting them, although the government could certainly do more to support the tariffs. BT has previously called for a subsidy to be provided, while others have sought a reduced 5% rate of VAT on social tariffs (here) and lower wholesale charges from network suppliers. But we must remember that, while ISPs do hold some social responsibility, they are ultimately commercial businesses and not charities.

Lest we forget that broadband tends to be a business with fairly low per-user margins, thus if take-up continues to rise then the ISPs that have to stomach the lion’s share of that hit will need to find extra funding from somewhere. The other challenge is that providers are expected to maintain the price point of their social tariffs, which becomes a problem in the current climate where inflation is continuing to increase their costs.

The typical business solutions to this problem include more cost-cutting (job losses etc.), bigger price rises for normal customers (ironically this risks a vicious circle of pushing more users on to social tariffs) and a reduction in investment on future upgrades/network build etc. None of that is desirable, but a balance has to be struck somewhere.

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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 X (Twitter), Mastodon, Facebook and .
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Comments
29 Responses
  1. Avatar photo Gh says:

    A joke. Here’s what it would look like to the tax payer to give a £10 broadband subsidy.

    Build a system to let providers check someone is on UC. Onboard providers pay support, hosting and engineering fees.

    Build a system providers can report into and claim subsidy. Have people making payments, resolving complaints and so on.

    The £10. The overhead will be bigger than the subsidy. If the government think they are not giving enough benefits for people to afford broadband best to just give them the extra £10 directly

    1. Avatar photo Name says:

      I personally would argue that more should be directed towards attempting to fix the mess that is the energy wholesale market, as opposed to the telecoms market

  2. Avatar photo anonymous says:

    No free hubs – user has to pay at least £10+delivery of £5.

    Speed limited tariff to no more than 20mbps.

    Limit bandwidth to 80GB per month (until last few years, a number of ISPs had a 2gbps limit per month on cheaper tariffs until ISPs went unlimited). This should be more than enough allowance for emails and job hunting with enough left over for web surfing, video calls.

    That should make it more sustainable, else you risk alienating those that do/can work and have to pay for everything without subsidy.

    1. Avatar photo Name says:

      The free hub thing whenever you join a big name ISP is quite dumb in my opinion considering e-waste

    2. Avatar photo anonymous says:

      Most people in receipt of benefits are in work and also paying tax. Your bigoted attitude & desire to punish those less well off than you risks alienating anyone with a shred of empathy.

    3. Avatar photo Anon says:

      Some of what you said is alright but just no to data caps on fixed connections, they don’t make sense and provide absolutely no benefit or reduced costs for providers. Once the line is set up and connected it literally doesn’t matter how much bandwidth is used it should not effect the providers bills unless they really really messed up somewhere.
      Data caps only make sense when it comes to mobile connections and even then it’s still not great the arguments for it.

    4. Avatar photo XGS Is On says:

      I can’t say it risks alienating me to be honest. I’ll very reluctantly continue to pay 45% tax + NI, be unhappy about it, but I’m certainly not going to bemoan a few quid of it going towards shoring up our abysmal welfare system. I find tax evasion, aggressive tax avoidance and the stench of corruption that surrounds Westminster far more troublesome than subsidising someone’s broadband.

      Broadband is the fourth utility. Has been for a while. The minimum standard of that utility to make it fit for purpose changes periodically, and as long as this keeps pace I’m fine with it.

      If we sorted the NHS out and had people get the help they need we’d have many less people on welfare after the past 2 years, but that’s an entirely different story.

    5. Avatar photo Ad47uk says:

      @Name, i agree, people seem to want new routers because they think it is better than the old one and a lot of the time it is not, providers like BT just stick more bloat in them. If the router has a problem then fine, get it changed.
      What needs to happen is providers should be forced to provide a router that works with any other provider. We used to have to supply our own modem on dial up, I still have my old US robotics courier. this free modem/router thing started with ADSL, when I first went to ADSL in 2000, I had a free USB frog modem. Speedtouch modem.,
      http://offog.org/notes/speedtouch-revival/speedtouch_size1600.jpg
      ADSL was pretty new, so the technology was no doubt a bit expensive, but a nice router can be picked up pretty cheap these days.
      I can kind of understand that providers may be able to sort out problems better with their own equipment, but it is still a waste.,

  3. Avatar photo Meadmodj says:

    DWP August 2021 will probably be higher now
    Universal Credit 5,806,000
    Housing Benefit 2,776,000
    Personal Independence Payment 2,773,000
    Employment and Support Allowance 1,784,000
    Attendance Allowance 1,514,000
    Pension Credit 1,420,000
    Disability Living Allowance 1,347,000
    Income Support 217,000
    Jobseeker’s Allowance 137,000

    ISPs offering Social Tariffs do not use the same definition
    ISPs can only determine whether the householder is entitled to an included benefit not their personal circumstances.
    Some on benefits may have a lower benefit payment due to working partners or other household income but they will show as being entitled.
    The sheer number creates an unknown liability to BT and no doubt they are seeing it in their figures.

    I think it is sensible that BT ask the question

    As the benefits are mean tested then perhaps so should their subsidised access to broadband.

  4. Avatar photo Ezra says:

    Boo hoo. Quite simply, I don’t believe a word of it. The £15/month is very close in price to the deals they offer new customers. Openreach charges roughly ~£5/month wholesale for a 40mpbs FTTC VDSL line. The remaining £10/month should be more than enough to cover their costs. It’s already limited in comparison to

    They’re actually worried about reductions in profit due to the entire country becoming poorer. It’s BT looking for an unwarranted hand-out not the benefit claimants.

    1. Avatar photo JustMy 2p Worth says:

      agreed, its a common thread and pattern of behaviour starting with “Too Big to fail Banks” and the gov. Bailouts, Now we are seeing “Wholesale Energy Market crisis” Now with a gov Bailout by the backdoor now other entities who cannot be satisfied simply with breaking even during a resession and a cost of living crisis. Instead they are now all holding their hands out for that free helicopter money to be dropped in from above due to vague reason of “unsustainable without support” I call BS on that.
      They have plenty of cash, doing share buy backs as they have so much cash the only thing they can do is to buy back their own shares, I dont recall BT doing any share buybacks (dont quote me on that) but big business like the FANG stocks do this… Its absolutly disgusting and pure greed at its finest.
      If a company is to turn profit in regular times then during lean times they should have built up reserves and kept back some of the previous trading years profits to see them through, OR just like anybody else go out and raise some capital from international markets if they want freemarket economics then play by the rules of free market economics, stop all the government interventions and subsidies… As for this whole aporoach to social tarrifs yes, if there is actually a business case for it… Problem is it seems business are only looking to the next financial Yr reporting, why dont they take a view to subsidy with a longer time horizon and in helping those struggling to get back on their feet now, another words investing in the future of their cistomers who could then repay when they are themselves in a better financial stead by moving to a faster tier, etc.

    2. Avatar photo XGS Is On says:

      The BT ISP don’t buy FTTC direct from Openreach. They pay BT Wholesale to pay for the access line from Openreach and the delivery from the thousand or so exchanges to their network.

      Their own costs come on top but that’s the expensive part and why even those who do pay Openreach direct and run networks inferior to BT’s (BT don’t lose big swathes of the country due to a single fibre break, everything on FTTC is in resilient rings) don’t go under £20 a month for 80/20 with virtually every product at that price 40/10.

      When you’re down at that price pennies matter. Check TalkTalk for how the margins are at the lower end of the price point.

  5. Avatar photo Mike says:

    The onus should not be on private businesses to subsidise people for the fault the government and the people that voted them in.

    1. Avatar photo XGS Is On says:

      For a change I absolutely agree with Mike. The governments of the past 12 years can certainly take at least 50% of the blame for the current state of the nation. Can’t blame world events for everything, and can’t claim the problems are the same everywhere when, clearly, they are not: we are heading for recession sooner than our peers and forecast to stay there for longer.

      We were the only nation to have failed to recover its pre-pandemic output. Real wages took until 2020 to recover to 2007 levels and are going to take a spanking. Productivity remains poor with zero prospect for improvement.

      Which is an amusing comment from me given it’s the middle of the working day but I’m on a break as I’ll be working veeeery late in conference with colleagues in California. Bit unsocial expecting them to all collect the Monday after Thanksgiving week at 8am. Some will be just about down to legal driving BA limits 🙂

  6. Avatar photo John says:

    Stop greedy corporations from abusing the welfare state

    1. Avatar photo XGS Is On says:

      Stop politicians leaning on companies to try and make them compensate for the lack of a fit for purpose welfare state.

    2. Avatar photo Wilson says:

      A welfare state does not function for long with open borders. Rather have open borders than welfare state tho

    3. Avatar photo Anthony says:

      Its not the corporations. We had 504,000 people net migrate to the UK. All of them wanting free everything. We voted for brexit to stop this and then the weak governments just let it happen anyway.

  7. Avatar photo Sam says:

    I’m personally on a social tariff. I tell you it’s been great knowing I can actually afford broadband as it’s pretty much become a utility like gas water and electricity. A lot of stuff requires the internet. The only thing I’d change is the option to have complete Wi-Fi as the Wi-Fi range isn’t that great in my house being solid brick walls. But before you say it yes I do work and claim UC to top up my income?

  8. Avatar photo Anthony says:

    Its not that good of a deal in anyway. Sipgate basic; you can put £10 on your account and then pay by call. I did this in May and I still have only used £2 of it. The calls are ridiculously cheap. And if you convince your friends and family to also get Sipgate Basic (as I have done) everyone calls each other for free. At this rate its going to take me about 3 years to use up that one £10. And I use my phone multiple times daily.

    1. Avatar photo anonymous says:

      SIPGate closed to new registrations and likely to start charging from sometime in 2023 for existing. I use them too and been good.

      Getting harder and harder to find a free UK/Europe based SIP provider that is free and can easily be integrated into a VOIP hone like Siemens Gigaset. Draytel pulled out too.

  9. Avatar photo timeless says:

    kinda feels like BT is holding its hand out just like energy companies did.. its less about providing a service and more about increasing shareholders handouts.

    1. Avatar photo Anthony says:

      Agree. For years I was on Plusnet and paying £20 per month for unlimited calls and internet at 30mb/s. BT own Plusnet. We are literally taking about £5 difference here from what they charge regularly.

      This is how greedy of a company BT is.

  10. Avatar photo Mark says:

    I’d like to know how BT think it’s not sustainable. They charge £20 a month for a social tariff that comes with 80/20 and act like it’s the best deal going. The problem is, if you look at other providers, Now TV charge £20 a month for the same service, Vodafone charge £21 a month for the same service, One Stream charge LESS than £20 a month for the same service (£19.95.)

    If those companies can provide the same service for the same price on a regular tariff that anyone can sign up to, then there’s no reason BT can’t do it either. Just comes down to greed!

    I think a lot of people believe that they’ll get better service from BT because they own Openreach, BT know this and that’s why they charge more for the exact same service as other providers!

    1. Avatar photo Nik says:

      Exactly

  11. Avatar photo Martin says:

    Maybe those tariffs aren’t really sustainable either. Now will be relying to an extent on driving revenue through the TV, Vodafone will be hoping to sell you a sim etc

    We seem to be in a weird market where there are lots of aggressive new customer offers, but now with built in price rises. The ISPs are desperate for customers, but at same time outside of marketing budgets feeling the pinch

  12. Avatar photo Ad47uk says:

    I get universal credit, about £25 a month 🙂 I thought I would try to get it and was shocked that I got something. So I could go for one of these social things, but I won’t. I would have to change providers for a start.
    For people that are really struggling, and it helps them, then yes I think social broadband is a good idea. Those who say it should be limited, so they can just do searches for jobs, they should remember that a lot of these people do work, but still struggling. some people like one of my friends have been working for years suffering with ill health, now at long last been laid off work medically unfit to work, she will not be getting universal credit, so she will not get social tariffs.
    Saying that some do offer it for PIP claimants,. I will have to tell her that as well.

  13. Avatar photo Ian says:

    It is of course complete nonsense, they’re charging more than enough for the service that is provided in the case of a social tariff and will be making a perfectly adequate – actually, a very decent – profit on each subscriber.

    The issue they have with these tariffs is that it gives the game away: data is cheap, very cheap. £10/mo would be an appropriate charge for the vast majority of people’s home internet usage in the vast majority of cases.

  14. Avatar photo Slow guy says:

    Once a year I go to a certain East European country, buy a SIM card for roughly €6, put it in a phone and hotspot unlimited internet to all my devices. Never had a situation when the internet didn’t work properly even though the phone showed that I was on a 3G connection. In this country you have to pay at least £30 for a 24 month contract to have the same service, or most of the time a worst one.

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