BIS Call for Evidence on Switching Principles. BT s response. December 2015

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1 BIS Call for Evidence on Switching Principles BT s response December

2 BT Response to BIS Call for Evidence on Switching Principles Summary of BT s views 1. BT fully supports the aims expressed by BIS in this Call for Evidence: that is, to encourage consumer engagement and empowerment, so as to stimulate increasingly competitive and dynamic markets. 2. We have worked with Ofcom over a number of years to review and improve switching within the telecommunications sector, to reduce friction for consumers and to make the process of switching providers as simple and seamless as possible. As reported in Annex B to this consultation, all consumers wishing to switch their fixed voice and/or broadband services between providers on the Openreach network are able to do so simply by contacting their gaining provider, and switches are generally free of charge, with an agreed completion date. 3. The other principles advocated by BIS are generally also adhered to in the telecoms sector, in that there is a price comparison accreditation scheme 1 to enable easy comparisons by consumers, and if anything goes wrong, consumers can seek redress through clearly defined complaint processes that include referrals to a mandatory alternative dispute resolution (ADR) scheme. Whilst there is currently no regulated requirement to provide customer usage data capable of being shared with third parties, consumers are able to access their data easily via online accounts. We comment further on these issues in our responses to specific questions below. 4. We will continue to work with Ofcom on improvements to switching processes. In particular, now that Ofcom has implemented a gaining provider-led (GPL) process for switches within the Openreach footprint, it is essential for the sake of both simplicity for consumers, and a level playing field between providers that GPL processes are now adopted across other networks and technologies, particularly where services are sold together in a bundle. 5. In particular, we are keen for Ofcom to extend a GPL process to include pay TV when sold in a triple play bundle with fixed voice and broadband, and for switches to and from Virgin Media s cable network to be regulated in the same way as switches within the Openreach footprint. Without such regulation, consumers can be confused about the correct process to follow, and existing rules can be undermined or side-stepped by some providers, creating further consumer harm and/or restricting effective competition. 6. It is notable that of all the sectors assessed in this Call for Evidence, the digital TV sector has by far the lowest switching rate, at just 2%, compared to fixed voice services and broadband at 6% and mobile at 7%. The lack of regulation around pay TV switching means that consumers have to have to talk to their losing provider to cancel their pay-tv service when switching a triple play bundle, and this is likely to suppress the switching rate not just within the pay TV sector but also 1 Ofcom s accreditation scheme for price calculators for comparison websites 2

3 across fixed voice and broadband sectors too, because providers can persuade consumers not to switch any of their services, not just pay-tv. We would be happy to discuss our views further with BIS in due course. Responses to BIS questions Q1. Do you think switching costs or contract terms act as a deterrent to switching? 7. Clearly it is likely that charges for switching supplier, overly-long contract periods or unfair penalties for leaving a contract early are all likely to deter consumers from switching. However, in the communications sector there is little evidence of any problems in this respect. Generally there are no charges for switching supplier. Contract terms are regulated under the General Conditions of Entitlement 2 applicable to Communications Providers (CPs). From 26 May 2011, the tie in period for new phone or broadband contracts was limited to a maximum of 24 months. And consumers and businesses also had to be offered a choice of contract lasting no longer than 12 months. A consumer s commitment to a minimum contract period enables the CP to offer favourable prices, and to recover its upfront costs. 8. In the event that a consumer decides to leave a contract within the minimum contract period, the Early Termination Charges (ETCs) that CPs are allowed to charge are regulated by Ofcom s Additional Charges Guidance. This is sector-specific guidance setting out Ofcom s view of how the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) would be likely to be interpreted in relation to certain charges and contract terms 3. BT and a number of other major CPs made a commitment to ensure that ETCs comply with this guidance, and Ofcom has had an ongoing Monitoring and Enforcement programme across the sector to check compliance. This means that ETCs are generally fair, in that they reflect no more than the consumer s remaining payments due under the contract, minus the costs saved by the CP as a result of the consumer leaving the contract early. 9. It is important that all CPs are encouraged to make their contract terms and charges clear and transparent so that consumers can make an informed decision, and we would encourage Ofcom to continue to enforce these requirements across the sector. Q2. In your sector, what are the key factors that contribute to switching costs and prevent free switching? 10. As noted in the Call for Evidence, Ofcom has implemented a Gaining Provider-Led (GPL) switching process for fixed voice and broadband switches between CPs on the Openreach network. This means that consumers do not incur the cost (in terms of time) of having to contact their Losing Provider (LP) as well as the Gaining Provider (GP). However this GPL process does not apply universally across the telecommunications sector. A Losing Provider- Led (LPL) process still operates for switches between mobile providers, and switches to and from other networks such as Virgin Media s cable network, or between providers of pay TV, 2 For communications networks and service providers there is no licence scheme, rather a general authorisation regime, with the General Conditions of Entitlement (that is, the conditions that apply to all) stipulating how operators should behave. 3 See 3

4 are not regulated. This means that consumers still have to incur the cost of speaking to the LP, in terms of time and potential friction, and sometimes inappropriate save activity. Q3. What would need to happen to remove these factors and implement free switching? 11. Ofcom has recently consulted on changes that it is considering making in relation to switching between mobile providers. One option is to move to a GPL process so that the consumer only has to contact their GP. BT supports this change, subject to Ofcom meeting its obligations to act proportionately. 12. In relation to switching to and from cable, and switching bundles of services including Pay TV, Ofcom plans to consult early in 2016 on the possibility of moving to a GPL process. This would be likely to remove switching costs and encourage freer and easier switching. Q4. Do you think the length of time it takes to switch acts as a deterrent to switching? 13. Generally the most important factor for consumers is certainty, rather than speed. They are prepared to wait a few days as long as they can rely on the switch happening on the date they have been advised. 14. Customers switching between fixed voice and broadband CPs on the Openreach network have a minimum of 10 working days to contact the GP should they want to change their mind. This is to allow for a cooling off period during which the LP is required to send the consumer a letter, setting out the full consequences of the switch (any ETCs, other services that will automatically cease, the impact on the price of any remaining services, etc). The switching period must allow time for the consumer to receive this letter, consider its contents and make an informed decision whether to continue with the switch or to cancel it (In some cases this time is also needed to carry out the physical network rearrangement necessary to implement the switch.) The letter also acts as a consumer protection mechanism in that it alerts the consumer to a switch that they might not have intended to commit to, or to an unscrupulous GP engaging in slamming, where unscrupulous companies switch customers to their service without the customer realising. 15. In the mobile sector, switches currently happen more quickly, and consumers expectations are therefore different (partially due to there not being a need to carry out any physical work to the mobile networks). If a GPL process is to be implemented, it will be important to find a way of informing the consumer of the consequences of the switch without slowing the process down. Q5. In your view, what factors might slow the speed of the process and/or prevent the switch taking place on an agreed date? 16. Occasionally there may be technical issues with a switch between providers or with the transfer of a consumer s number between networks, which may result in a delay. 4

5 Q6. What would need to happen to remove these factors and implement quicker switching on an agreed date? 17. Such technical issues are generally caused by problems at the network level. Network providers are already incentivised to ensure that such technical issues are minimised, as there are regulated targets and Service Level Agreements relating to provision and repair of fixed lines. Retail CPs are also incentivised to ensure that switches happen as smoothly as possible as delays result in increased customer service costs and, for the gaining provider, delayed revenues. Therefore we don t believe there is a need for any further intervention in this respect. Q7. Do you think consumers would be more likely to switch if they only had to deal with the gaining provider (i.e. where the new provider takes responsibility for organising all steps in the switch)? 18. As noted in the Call for Evidence, Ofcom has already implemented a GPL switching process for switches of fixed voice and broadband services between CPs on the Openreach network. BT agrees that this makes switching simpler for consumers, although it is vital that they have an opportunity to consider the full implications of switching (including any (ETCs) payable to the LP and the impact on any remaining services) and to make an informed decision about whether to proceed. It is also vital that there is sufficient consumer protection built into the process to guard against any mis-selling or slamming by unscrupulous GPs. 19. There are also other factors which determine the likelihood of switching, such as the competitiveness of offers available, ease of comparison, and the length of any contract term remaining; a GPL process will not necessarily address all the causes of low switching levels in any market. 20. Ofcom has decided that a GPL process is better for consumers and more likely to encourage switching, because having to speak to the LP can cause extra hassle for the consumer and enables the LP to try to change the consumer s mind. Now that Ofcom has made its decision in relation to switches within the Openreach network, it is vital that a consistent approach is taken across all of the sector, regardless of the underlying network or technology particularly where services are increasingly bought in bundles (such as pay-tv with fixed voice and broadband and, in the future, quad-play with mobile). Otherwise, confusion is created for consumers, who do not know which process to follow; and the competitive playing field is not level, which we believe is harmful for consumers as well as for effective competition. Q8. In your view what factors might prevent the gaining provider taking responsibility for organising all steps in the switch, or force the consumer to engage with their existing provider to arrange the switch? 21. At the moment, as described above, switches within the Openreach network follow a GPL process, but customers wishing to switch away from Virgin Media to a CP based on the Openreach network must still engage with Virgin Media in order to cancel their broadband and/or TV services. Similarly, because Pay TV switching is not regulated, a customer switching their voice, broadband and Pay TV bundle away from Sky must speak to Sky in 5

6 order to cancel the TV element. This gives Sky and Virgin Media, as the LP, an opportunity to persuade the consumer to stay with them for all of their services, thus deterring switching, and creating a competitive asymmetry. Ofcom has the power to implement GPL switching in all telecoms markets, subject to demonstrating the need and establishing a proportionate and cost-justified solution. 22. Other factors that can create a need for the consumer to engage with their existing provider include the need to query the size of any ETCs, or the price/terms of any remaining services. Generally it should be possible, however, for the LP to explain these things clearly in a letter or an , removing the need for the consumer to speak to the LP unless they want to. Q9. What would need to happen to remove these factors and implement gaining provider-led switching? 23. Ofcom needs to take the necessary steps to regulate switching to and from cable, and switches of bundles that include pay TV. The first step is to consult, which we understand Ofcom intends to do early in Those in favour of a regulated GPL process will need to demonstrate the consumer harm created by the status quo, and show that a change to a GPL process is proportionate and cost-justified. Q10. Do you think consumers are easily able to work out how much they are using each month (e.g. gas units, data, minutes) and use this information to manage their accounts or make valid comparisons of deals? 24. Yes, we believe this information is readily available to consumers in the telecoms sector. With regard to BT, for fixed-line services we enable consumers to work out how much they are using via the charges breakdown on their bill and usage data we make available on our web service for customers, mybt, which they can check from anywhere at any time. The bill lays out the recurring monthly subscription charges for customers products and also the usage charges incurred in that billing period. 25. BT Mobile customers can see how much data, calls or texts they are using at any time in the BT Mobile app or at They can also call 150 and ask to hear their usage, with automated responses detailing how much they ve used. We also send texts to customers when they are approaching their plan s usage allowance limits and once again when they ve hit the limit. We also send texts out when they are approaching their monthly spend cap and again once they ve reached it. We send texts to customers when they are abroad to let them know how much they are using and when they are approaching spend caps that apply when travelling overseas. Q11. What would need to happen to make it easier for consumers to better understand their usage patterns and use this information to manage their accounts or to make valid comparisons of deals? 26. BT always aims to lay out clearly how each deal works, along with the benefits to the consumer. But we do recognise that if providers have different definitions for weekend 6

7 calls, for example, then it may be difficult to ascertain if inclusive usage with one provider would also be inclusive with another provider. For example, when BT included calls to higher charging rate 0870 and 0845 numbers within customers allowances, other CPs did not, and some consumers may not have factored this in when choosing providers. We believe that plans should be easily comprehensible so that consumers can make comparisons easily, and we aim to do this. 27. Most consumers don t know how much fixed or mobile data they are using because it is harder to quantify. Minutes and texts are easier to understand but 500Mb, for example, is not because doing different things, e.g. uploading a photo to Facebook, tweeting or watching a video, uses up different amounts of data. We make sure consumers have as much information as possible before signing up and also give them the tools to monitor their usage and manage what they are spending. We also give unlimited access to BT Wi-Fi as part of their broadband plans so in many areas they can choose not to use any of their mobile data allowance. 28. A universal approach to letting customers know how much data they are using and on what service/type of usage (e.g. music, surfing etc) might help to drive more clarity for consumers when comparing deals. Q12. In your view, can consumers be confident that comparisons sites will give them a good chance of identifying the best deal for them? 29. In the telecoms sector independent comparison sites aid customers by focusing on the best deals, taking into account a number of factors including price, usage allowances, contract length and added-value products, such as BT Sport and BT Wi-Fi. Comparison sites are incentivised to feature most prominently the deals that appeal most to consumers as the vast majority of their income is on a commission basis. Featuring prominently deals that are not good for consumers is costly for them as it results in lower sales and therefore lower earnings per site visitor, the key lever of profitability for comparison sites. Q13. Do you consider that comparison sites make sufficiently clear where they have received funding from featured suppliers? 30. It is not always clear that comparison sites receive significant commissions from suppliers that fund their businesses and some comparison sites present themselves as an independent alternative for consumers conducting research themselves, which is not always the case. Whilst comparison sites are incentivised to help consumers find the best deals and switch, there is a risk that this perceived independence is not always in consumers interest. For example, it is possible to pay tenancy fees for more prominent positions on some sites and this is not always 100% clear to consumers. Q14. What would need to happen for consumers to be confident comparison sites will help them identify the best deal for them, and/or make clear when they receive funding from featured suppliers? 31. With regard to the telecoms sector, it would be helpful for comparison sites to make more prominent on their sites that they are funded by supplier commissions based on the number of consumers that switch and which supplier they switch to. Whilst in general the current 7

8 incentives for comparison sites work well for consumers there is a risk that one or a number of suppliers could gain advantage by paying higher amounts for prominent positions and consumers should be aware of this. 32. We also believe that it is important for comparison sites to be able to use an element of subjectivity to judge the quality of deals. Simply positioning deals based on one metric only, eg, price, as some comparison sites have tested is not in consumers best interests as this misses the opportunity for comparison sites to prominently display added value for consumers or reflect product quality in their listings (for example, customer service ratings, inclusive TV services, average speeds or usage limits, etc). Ofcom are considering this as part of their consumer empowerment work under the Digital Communications Review. Q15. Do you consider that there is an effective redress avenue available when a problem arises with the switching process? 33. As noted in the Call for Evidence, CPs are required under General Conditions to ensure that consumers have access to a complaints process and alternative dispute resolution (ADR) if they are not satisfied with any redress offered by the LP or the GP following a delay to their switch, and/or a loss of service. If necessary, the ADR provider will consider the evidence, decide who has been at fault, and reach a resolution. We believe this provides an effective redress avenue for consumers. 34. The Consumer Rights Act 2015 requires suppliers to provide service in conformity with the contract and with reasonable care and skill. Where the supplier fails to do so, the consumer is entitled to certain remedies. Firstly the consumer is entitled to the remedy of repeat performance, where it s not possible to repeat performance in a reasonable period of time without causing the consumer significant inconvenience, the supplier is obliged to offer the consumer a discount or a refund within 14 days of agreeing the level of compensation with the consumer. These protections should be sufficient to ensure that consumers will always have an avenue for redress when a problem arises with a switch which results in a loss of service. Q16. In your view what would an effective redress system look like and how could it be implemented? 35. We believe that the measures outlined above currently provide sufficient consumer protection and access to redress. Final comments Q17. Do you have any other comments you would like to make on the switching process or the proposed switching principles? 36. We are supportive both of BIS s proposed switching principles, and of Ofcom s moves to improve switching processes. We look forward to working with both BIS and Ofcom in future on this important subject. 8

9 Q18. Please upload any additional evidence you have on the switching principles that you would like to share. For example, any surveys or research you have conducted. By uploading a file, you are confirming that you are the copyright holder. Please attach a copy of any documents you wish to include to this printout. We have nothing further to add here. We would be happy to discuss these issues further. Further enquiries can be directed to David Pincott, Head of Political Research, Policy and Briefing, BT Group plc Tel: / david.pincott@bt.com 9