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Proposal that BT's and Kingston's price controls in respect of rental of hardwired telephone apparatus should be removed and replaced by written undertakings

Consultation published: 10|06|2004
Consultation closes: 22|07|2004

Summary

What this consultation is about

1. Ofcom is seeking views on its proposals to change the way in which it regulates the rental prices of hardwired telephones.

Hardwired telephones

2. Most UK consumers with a landline use a 'plug and socket' telephone, which they can easily plug in and unplug, and have a terminal connection which allows them to fit and use different telephone equipment ('a universal socket').

3. However, BT and Kingston still have a small number of customers who rent an older style of telephone, which is fixed or 'hardwired' into their premises and cannot be easily removed by hand. Before they can connect and use other telephone equipment, these customers ('hardwired customers') need to have their terminal connection altered to a universal socket. BT and Kingston no longer fit hardwired apparatus.

The current price control

4. BT and Kingston have been required, by means of formal price control licence conditions, which were first put in place in 1993 and 1999 respectively, not to raise their rental prices for hardwired telephones above RPI+0% per year. The price control conditions in place in July 2003 were continued by means of continuation notices given to BT and Kingston under the Communications Act ('the Act), following the abolition of licences on 25 July 2003. These continued conditions (Condition 67 for BT, Condition 66 for Kingston) are referred to in this document as the 'Continued Hardwired Price Controls'.

The regulatory framework

5. The Communications Act 2003 has changed the way in which communications services, including telecommunications, are regulated. Individual licences made under the Telecommunications Act 1984 have now been replaced in part by General Conditions made under the Act.

6. However, there are a number of specific conditions previously included in some individual licences which cannot be replaced by new conditions under the powers contained in the Act without first conducting a market review. Such conditions include the Continued Hardwired Price Controls.

7. Ofcom cannot leave the Continued Hardwired Price Controls in place indefinitely. They need to be removed as soon as practicable and can only be replaced by new conditions if, having reviewed the relevant market, Ofcom finds that the communications provider is dominant, that is, it has a certain degree of market power known as 'Significant Market Power' ('SMP').

8. Under section 93 of the Act, Ofcom is able to impose certain types of conditions in respect of hardwired telephone rentals where it finds that the communications provider has SMP in the relevant market. Under section 93 of the Act, Ofcom can set SMP apparatus conditions which:

require the communications provider to maintain separate accounts in relation to hardwired telephones; and/or
impose price controls.

Ofcom's regulatory principles

9. Ofcom's approach to regulation is to operate with a bias against intervention, but with a willingness to intervene firmly, promptly and effectively where required. Ofcom is also committed to seeking the least intrusive regulatory mechanisms to achieve its policy objectives.

Ofcom's proposal

10. Ofcom believes that this is an area requiring continued consumer protection, particularly because:

there is no option to buy hardwired apparatus, only to rent;
rental prices appear high, in relation to the costs to the provider;
hardwired customers have often been paying rent for many years (BT last installed a hardwired telephone over 20 years ago); and
customers may be deterred from requesting that their hardwired terminal connection be converted to a universal socket where the provider makes a charge for conversion.

11.However, in keeping with its regulatory principles mentioned above, Ofcom believes that its objectives to protect consumers and give incentives to consumers to change to universal sockets can be best achieved through informal regulation at this time.

12.Preliminary discussions with BT and Kingston indicate that they are prepared to give undertakings that will help reduce the number of customers with hardwired apparatus and ensure that rental prices of hardwired telephones do not increase by more than RPI + 0% per year.

13.Ofcom therefore proposes to:

remove the Continued Hardwired Price Controls on BT and Kingston; and
obtain written undertakings:
- from BT and Kingston not to raise rental prices of hardwired prices by more than RPI + 0% per year;
- from Kingston to provide free socket conversions upon request; and
- from BT to provide free socket conversions to elderly customers and customers it considers 'vulnerable' upon request, and to publicise the availability of free conversions appropriately.

14.In making this proposal, Ofcom has taken into account that the undertakings are wider-ranging than the conditions which Ofcom could impose following a market review.

Next steps

15.Interested parties are invited to comment on the proposal contained in this document no later than 22 July 2004. Arrangements for submitting comments are detailed in Section 4.

Proposal that BT's and Kingston's price controls in respect of rental of hardwired telephone apparatus should be removed and replaced by written undertakings

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Proposal that BT's and Kingston's price controls in respect of rental of hardwired telephone apparatus should be removed and replaced by written undertakings

Summary

What this consultation is about

Hardwired telephones

The current price control

The regulatory framework

Ofcom's regulatory principles

Ofcom's proposal

Next steps

Further information

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