Committee of Public Accounts


Press Notice No. 11 of Session 2003-04, dated 23 March 2004


HELPING CONSUMERS BENEFIT FROM COMPETITION
IN TELECOMMUNICATIONS (HC 405)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today that many consumers are not getting as good a deal as they could on their telephone bills and that Oftel must now back up its claims to place the consumer at the heart of its work by drawing public attention to the savings available from switching supplier.

Mr Leigh was speaking as the Committee published its 11th Report of this Session, which examined the Office of Telecommunication's regulatory strategy, the choices for consumers, and combating anti-competitive behaviour. The fixed-line telecommunications market has been liberalised over the 20 years since the privatisation of British Telecommunications (BT) in 1984. BT then had a virtual monopoly and Parliament created the Office of Telecommunications (Oftel) to regulate the market. From 29 December 2003, the Office of Communications (Ofcom) took over Oftel's regulatory functions. There are now competitive alternatives to BT in virtually all sectors of the market, but BT retains around 70% of the total market and 75% of the domestic market.

The Committee found that the market is confusing for consumers. Competition in the telecommunications market is well established, bringing a wide range of choices for consumers, including which company will provide their phone line and which tariff they should choose. Whether consumers can make informed choices depends on whether they can make meaningful comparisons between companies.

Consumers may not have the right information to identify the best deal. Many telephone bills do not provide enough information to allow customers to determine the best tariff and discount options, and the differing ways in which companies quote phone tariffs means that comparisons can be difficult. Ofcom should disseminate guidance on how consumers should identify the best supplier, using a series of typical phone bills as case studies.

Consumers may be confused about what they are paying at present. Consumers will find it harder to make an informed choice if their current phone bill is obscure. Ofcom should work with phone companies to develop more standardised and transparent charging structures that enable comparisons to be made.

Many consumers are not taking advantage of existing opportunities to save money. Ofcom should conduct a study into the take-up of the BT Light User scheme, to quantify the existing level of take-up and establish the reasons why more eligible consumers do not take advantage of the scheme. Ofcom should also conduct an education campaign to ensure that consumers know that it costs more to rent than to buy handsets.

Oftel was remote from consumers and did not do enough to help them. Its guidance did not give practical examples of how consumers might make choices, and its external publicity budget in 2002-03 of £45,000 was only 0.2% of its overall budget of £19.5 million. It nevertheless told us that if consumers continued not to switch to the most beneficial options, it would have to question human nature in the face of overwhelming information.

Ofcom should actively encourage consumers to switch supplier. Oftel did not follow the practice of Ofgem and Energywatch in encouraging consumers to switch supplier to get a better deal. Switching supplier or tariff is, however, the best way to take advantage of competition and Ofcom should tell consumers about the opportunities and risks of switching, and draw public attention to the savings available from switching supplier.

Ofcom should undertake a research programme into the information needs of consumers. Oftel claimed to place the consumer at the heart of its work, yet adopted a hands-off approach to consumer information, allocated a small proportion of its resources to improving consumers' knowledge, and assumed that consumers conformed to a model of "rational" behaviour. Where the market is complicated and changing rapidly, however, there is a greater, rather than a lesser need for the regulator to understand consumer needs.

Mr Leigh said today:

"Many consumers are not getting as good a deal as they could on their telephone bills. They could save money by either switching supplier or changing their tariff. It is unacceptable that BT retains around 70% of the total market 20 years after privatisation. There is no doubt that consumers find the telecommunications market confusing, and need more help to make properly informed choices. But Oftel is remote from consumers and spends only a tiny slice of its budget on external publicity. Oftel must back up its claims to place the consumer at the heart of its work by disseminating guidance on how to identify the best supplier and drawing public attention to the savings available from switching."


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