{"id":14682,"date":"2017-10-02T09:11:15","date_gmt":"2017-10-02T08:11:15","guid":{"rendered":"https:\/\/www.ispreview.co.uk\/?p=14682"},"modified":"2017-10-02T09:25:53","modified_gmt":"2017-10-02T08:25:53","slug":"report-calls-competition-uk-fixed-line-broadband-isp-market","status":"publish","type":"post","link":"https:\/\/www.ispreview.co.uk\/index.php\/2017\/10\/report-calls-competition-uk-fixed-line-broadband-isp-market.html","title":{"rendered":"Report Calls for More Competition in the UK Fixed Line Broadband ISP Market"},"content":{"rendered":"

The Social Market Foundation<\/a>, a non-partisan think tank, has warned that broadband and telephony remain “highly concentrated consumer markets<\/em>” and a lack of effective competition can translate into higher prices, poorer services, less choice and possibly lower rates of investment or innovation.<\/p>\n

The fixed line broadband market in the United Kingdom looks, at least on the surface, to be highly competitive. Today there are hundreds of providers (our UK ISP Listings<\/a> cover about 200) and an increasing number of those have built their own alternative network platforms (e.g. Gigaclear<\/a>, B4RN<\/a>, Hyperoptic<\/a> etc.). The latter example is also somewhat of a growth area, particularly around fixed wireless and pure fibre optic infrastructure.<\/p>\n

However most consumers continue to receive their services from a concentration of several large providers, including BT<\/a>, Sky Broadband<\/a>, Virgin Media<\/a> and TalkTalk<\/a> (see our Top 10 ISPs by Subscriber Size<\/a> table). A new report from the SMF, which examined competition and concentration across various different UK markets, claims that the broadband market in particular has “become less competitive in recent years<\/em>“.<\/p>\n

Mobile telephony has also become more concentrated since the merger of Orange and T-Mobile into EE<\/a> (BT<\/a>). Similarly one of Ofcom<\/a>’s key arguments against the blocked merger of Three UK<\/a> and O2<\/a> was that it could have resulted in higher prices for consumers by reducing the number of primary mobile network operators from four to three (i.e. less competition).<\/p>\n

The report reflects market concentration by using two ratio measures. CR1<\/strong> reflects the market share of the largest firm within a consumer market (e.g. BT for retail broadband), while CR4<\/strong> reflects the market share of the four largest firms (as per the aforementioned ISPs).<\/p>\n

\"broadband<\/p>\n

Consolidation in the industry has reduced the number of large players in the fixed line broadband market and two firms – BT and Sky – now have a combined market share of 55% (2016). Similarly Sky has managed to triple its market share since 2007 and move from the fourth largest broadband supplier to the second largest supplier, while the relative rankings of the top four firms in the broadband industry has not changed since 2014.<\/p>\n

The report claims that Sky’s ability to increase its relative rank may “reflect the impact of bundling its broadband service with pay TV packages, rather than straightforward competition in the broadband space<\/em>“. Bundling, especially when combined with longer contract terms, can help to save consumers money but the report argues that it can also be counter-productive to consumer choice by making it harder to switch to new entrants.<\/p>\n

According to Ofcom<\/a>, some 81% of households are estimated to purchase at least two of their communication services together, from the same supplier. Meanwhile bundles of broadband, phone and TV continue to grow. Interestingly a recent consumer survey by YouGov found that 22% of people believed that there is “little or no choice<\/em>” in the broadband market, which falls to 14% for Mobile.<\/p>\n

The report highlights that another channel through which bundling may increase industry concentration is via increased entry costs for a company to compete on a level playing field with established firms. For example, a company wishing to truly compete with Sky Broadband<\/a> and BT in the broadband space “may now need to have a credible pay TV option<\/em>” in order to be able to win over a significant number of customers.<\/p>\n

However we think the above position overlooks the growing influence of Netflix, Amazon<\/a> Video, NOW TV<\/a> and other video streaming providers, which are eroding the traditionally serial approach to Pay TV viewing and distribution (earlier this year Vodafone<\/a> shelved its plans for Pay TV).<\/p>\n

Report Conclusion<\/strong><\/p>\n

The majority of the markets considered in this research remain concentrated. Of the 10 markets examined, only two \u2013 cars and mortgages – were not \u201cconcentrated\u201d last year, on the Herfindahl-Hirschman measure of market concentration. Broadband and telephony are highly concentrated consumer markets.<\/p>\n

The causes of market concentration are numerous, including barriers to entry and scaling up, low switching rates and incumbent advantages. We believe that two drivers of market concentration \u2013 bundling and networking effects \u2013 will be of increasing importance in the future, creating new and growing challenges for policy-makers in their efforts to create more competitive markets. We have seen substantial growth in product bundling in the telecommunications space, with several companies offering pay TV, broadband and mobile telephony bundles. By \u201cembedding\u201d consumers in a company, bundling can deter switching to new entrants in an industry.<\/p>\n

Bundling is likely to become a growing competition issue in the future, with tech companies such as Apple and Google expanding into new areas such as automotive. We may also see an increased tendency towards bundling in the financial services sector, as banks attempt to retain customers. Network effects are increasingly important given the rise of internet-based services. The benefits of using the same platform as others when it comes to software and social media means that these consumer markets are very highly concentrated. The high profits and near-monopoly position of some tech companies is likely to be one of the greatest regulatory challenges of the 21st century, especially given the transnational nature of these companies which means that cross-country collaboration would be needed to create more effective competition.<\/p>\n

Building trust remains an ongoing challenge for new entrants into markets, with survey research showing consumers particularly reluctant to use unknown brands in financial services. This is despite significant deposit guarantees that exist to protect UK consumers \u2013 suggesting that households are overestimating the risks of using a new bank over an established firm. This may reflect a lack of knowledge about deposit guarantees.<\/p><\/blockquote>\n

Some would argue that too much competition can also be a double edged sword. For example, there are those who say that the United Kingdom might today have been completely covered by ultrafast fibre optic (FTTP<\/a>\/H) broadband networks had BT remained the sole state provider of telecommunications services (BT was a leader in optical fibre until it gradually stopped being a state owned monopoly).<\/p>\n

Mind you the services in a captive market can also be more expensive, although equally too much competition can trigger a race to the bottom (cheapest) in terms of pricing vs service quality (we’ve seen a fair bit of that in the UK) and balancing that out often requires careful regulation.<\/p>\n

Sadly the report itself doesn’t offer any solutions for tackling the claimed lack of competition in consumer markets, although that is expected to follow in a second report that will be published either at the end of 2017 or during early 2018. The author does however admit that, given varying trends across consumer markets, a one size fits all solution is unlikely to work.<\/p>\n

In the meantime it’s worth noting that Ofcom’s recent Strategic Review<\/strong><\/a>, which brought about the “legal separation<\/em>” of Openreach<\/a> from BT and set about opening up more of the operator’s national fixed line network for use by rivals, does at least offer the promise of helping to grow alternative network providers. Similarly the Government has built a related investment programme around this desire (here<\/a>).<\/p>\n

At the same time the regulator plans to impose tougher quality standards and other measures upon Openreach<\/a>, which should bring further improvements to the performance and competitive side of things. However there is a big question mark over what two of the telecom markets key players will do in the future.<\/p>\n

In the first case, Vodafone<\/a> are currently mooting the prospect of a significant FTTP<\/a> roll-out alongside Openreach as part of an on-going consultation (here<\/a>), which could potentially have a huge impact upon the wider market. Elsewhere, if Fox succeeds in its bid to gobble Sky then the future of the merger company’s broadband business may also be called into question (Fox doesn’t seem to find that side of things to be very appealing).<\/p>\n

Suffice to say that the national fixed line broadband market is anything but dull and it seems to change almost as frequently as the technology at its core. On top of that the UK’s broadband market is arguably already more competitive than many others in the EU.<\/p>\n

Social Market Foundation Competition Report (PDF)<\/strong>
\nhttp:\/\/www.smf.co.uk\/wp-content\/uploads\/2017\/10\/Concentration-not-competition.pdf<\/a><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The Social Market Foundation, a non-partisan think tank, has warned that broadband and telephony remain “highly concentrated consumer markets” and a lack of effective competition can translate into higher prices, poorer services, less choice and possibly lower rates of investment or innovation.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[1],"tags":[472,38,34],"class_list":["post-14682","post","type-post","status-publish","format-standard","hentry","category-uk_isp_news","tag-business","tag-politics","tag-statistics"],"share_on_mastodon":{"url":"","error":""},"yoast_head":"\nReport Calls for More Competition in the UK Fixed Line Broadband ISP Market - ISPreview UK<\/title>\n<meta name=\"description\" content=\"The Social Market Foundation, a non-partisan think tank, has warned that broadband and telephony remain "highly concentrated consumer markets" and a lack\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ispreview.co.uk\/index.php\/2017\/10\/report-calls-competition-uk-fixed-line-broadband-isp-market.html\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Report Calls for More Competition in the UK Fixed Line Broadband ISP Market - 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