UK regulator moves on landline price hikes of 49% or more

Telecoms regulator Ofcom has denounced fixed line phone price rises in the UK, showing conclusively how all major phone providers are lifting prices while the wholesale cost of the lines to them falls.

And while it may not have the power to affect all the fixed lines in the market, it can at least apply a formula to the heavily regulated monopoly provider British Telecom and force its landline prices down by around £5 ($6.2) a month. It concludes that people who do not change providers regularly and those who only take a phone line from BT, and take video and broadband from someone else, are the worst affected, and that often means the most vulnerable customers – the very old and poor – are getting fleeced.

If Ofcom can make BT bring its landline prices down to 2009 pricing levels, that will apply competitive pressure onto Virgin, TalkTalk and Sky and it will likely force their prices down too.

Ofcom calculates that over two million people would see their monthly bills cut by at least £5 per month, under its plan.

Part of the reason for this is that the fixed line market is no longer seen as an area for competition and most price pitches are at new video services, broadband or a triple or quad play, including mobile.

Ofcom said that major providers have increased line rental charges by between 25% and 49% in real terms since 2009, despite getting their lines for around 26% less. This will create a fall of that same percentage, 26%, in BT landlines, and safeguards will be put in place says Ofcom, to prevent BT from hiking the prices ahead of inflation.

Sharon White, Ofcom Chief Executive, 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.

Almost 80% (2.3m) of the UK’s 2.9m landline-only customers are with BT. Ofcom has found that BT’s market power has allowed it to increase prices without much risk of losing customers. Other providers have then followed BT’s pricing lead.

Ofcom will first propose this change and then seek the views of market constituents on a fall of between £5 and £7 a month. Ofcom will make sure that competitors to BT can still make a profit on any customers they attract. Ofcom will also place the onus on BT to keep these customers informed of how they are missing out by not taking high discount bundles.

On average, landline-only customers have been with their provider for more than 20 years, compared to eight years for phones with broadband customers, and four years for triple-play customers.

Some 43% of customers with a standalone landline contract are 75 years old or over, while 35% live in lower income households and some 70% of landline-only customers have never ever switched provider, and are often unaware that it is possible.

The planned price cut would not apply to landline services sold by BT Consumer as part of a bundle of services including broadband.