Ofcom has announced proposals which would see more than two million customers who buy only a landline telephone service from BT having their monthly bills cut by at least £5.
Ofcom’s chief executive Sharon White (pictured) said the regulator has reviewed how the market is working for customers who buy only a landline service from a provider, either because they do not want broadband or pay TV, or because they take these services under separate contracts, usually from different companies, and ‘We have found that these customers - often elderly or vulnerable people who have remained with the same landline provider for decades - are getting poor value for money in a market that is not serving them well enough.’
The Ofcom proposals argue that landline-only customers are particularly affected by price hikes in telephone line rental, with major providers increasing their line rental charges by between 25% and 49% in recent years, despite providers benefiting from around a 26% fall in the underlying wholesale cost of providing a landline service.
Ofcom proposes giving customers with standalone landline contracts additional protection by cutting the cost of BT’s line rental by at least £5 per month, or £60 per year. The planned price cut would not apply to landline services sold by BT Consumer as part of a bundle of services including broadband.
This would mean that BT customers with only a landline, who currently pay £18.99 per month for line rental, would pay no more than £13.99, a reduction of at least 26%. The cut would return the cost of line rental to 2009 levels in real terms, effectively reversing price hikes for landline-only customers.
Ofcom is also proposing safeguards to prevent BT from making future increases to line rental and landline call costs by more than inflation.
White continued '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.'
'Customers of 'bundled' services – packages including landline, broadband and/or pay TV – benefit from a range of attractive deals, driven by strong competition. By contrast, offers for landline-only customers have become increasingly limited, with a number of providers withdrawing their telephone-only products altogether.'
Almost 80% (2.3m) of the UK’s 2.9m landline-only customers are with BT. Ofcom argues that BT’s market power has allowed it to increase prices without much risk of losing customers, with other providers have then followed BT’s pricing lead.
White continued ‘We expect that our proposed cut in BT’s prices would lead to other providers following suit and reducing theirs. This would mean savings for landline-only customers across the market. Ofcom is proposing, and seeking views on, a range of £5-£7 per month for the cut to BT’s landline-only line rental. We will take into account the need to protect consumers, while also preserving competition and ensuring that competitors to BT can profitably attract new customers.’
Ofcom also intends to require BT to trial different approaches for communicating with its landline-only customers, to help them better understand what they are paying, and how other BT packages - or other providers - might offer better value for money.
Commenting on the announcement, Dan Howdle, consumer telecoms expert at comparison site Cable.co.uk, says: ‘Our own historical pricing data shows the rise in landline prices to have exceeded inflation by a factor of twelve across the last three years alone.’
‘While these costs are absorbed easily into the prices of bundled packages including broadband and TV, proportionately they have affected most landline-only customers, which correlated strongly with those that are least able to cope with the added costs.’
‘While it's true that BT has added some value in terms of nuisance call blocking and other calling features, with the underlying wholesale costs coming down steadily for the last ten years, these price hikes have become increasingly hard to justify. Ofcom has stepped in and done exactly what was needed.’