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Summary

1.1 Universal Service ensures that basic fixed line services are available at an affordable price to all citizen and customers across the UK.

1.2 The scope of the Universal Service Obligations (‘USO’) is defined by the EC Universal Services Directive (‘USD’). The Secretary of State for Trade and Industry specifies the services which must be provided throughout the UK in the Universal Service Order (‘the Order’). The Order has been implemented by Ofcom through specific conditions on the Universal Service Providers (‘USPs’), BT and Kingston Communications, and general conditions on all providers. USO services include: special tariff schemes for low income customers; a connection to the fixed network, which includes functional internet access; reasonable geographic access to public call boxes; and a range of services for customers with disabilities including the text relay service.

1.3 Ofcom is now reviewing USO with four main aims:

• Ensuring that the obligations continue to meet the needs of consumers as demands and technology change;
• Finding the right balance between the needs of vulnerable customers and changing commercial conditions;
• Marking sure the benefits of measures reach those who need them by targeting and creating incentives; and
• Preparing for the future by linking with Ofcom’s strategic review.

1.4 Ofcom published a consultation document on 10 January 2005 (‘the consultation document’) examining the current operation of USO and making a series of proposals for change. This document sets out our conclusions and asks for comments on proposals for legal changes to implement these conclusions.

USO Review and the Strategic Review of Telecoms

1.5 The USO review is focussed on the next two to five years and is being carried out alongside the Strategic Review of Telecoms (‘Telecoms Review’) which looks at longer term Universal Service issues. The Telecoms Review‘s conclusions on USO were set out by Ofcom on 23 June 2005 and are included in this document for completeness. The Telecoms Review emphasised the importance of USO as a ‘safety net’ for vulnerable consumers but noted that the mechanisms for funding, for example a Universal Service fund, and provision of universal service may need to change if and when the provision of USO becomes an unfair burden. It may also be appropriate to alter the overall scope of USO. Though we do not believe that there is a case for proposing that universal services be extended to include broadband at this point, the Telecoms Review has considered how the scope of USO might evolve over time.

Affordability

1.6 As USPs, BT and Kingston have to ensure that customers can afford to obtain and retain telephone service. This is achieved through special tariff schemes aimed at customers on low incomes. BT’s existing schemes use a proxy of low use in order to attract low income customers and around 60% of users are from low-income households. Ofcom consulted on BT proposals for an alternative scheme targeted more directly at those on low incomes. Ofcom proposes to go ahead with the targeted scheme but modified to reflect concerns raised in responses to the consultation. Improvements since the consultation include a discount for early payment and an increased allowance of free calls included with the line rental. It will be aimed at customers who receive Income Support or Pension Credit/Housing Benefit and most customers on the scheme can be better off than on the existing schemes. To protect customers on the existing schemes, those schemes will not be withdrawn until 600 000 customers are on the new scheme.

1.7 Disconnections policy is another indicator of affordability. BT disconnects around 5% of residential customers (1 million) a year for non-payment of bills. Ofcom welcomes BT’s recently increased marketing of schemes such as prepay to help customers with payment difficulties. This should assist customers who might otherwise be disconnected. BT has set a target for 2006 of 180,000 customers for its pre-pay scheme. If this target is not met and sustained, Ofcom will examine regulatory measures to promote alternatives to disconnections.

Public Call Boxes

1.8 Public Call Boxes (PCBs) provide a service that is valued and needed by many people without a phone or those away from home, who cannot, for whatever reason, use their mobile. Many disadvantaged and vulnerable consumers still rely on PCBs.

1.9 BT and Kingston are each required to ensure adequate coverage of PCBs. Ofcom considers that adequate coverage is best determined at a local level. The last PCB cannot currently be removed from a site if a local council objects – ‘the local veto’. As revenues have fallen, BT has argued that the local veto is unduly restrictive. Ofcom has concluded that the local veto should remain but be restricted to unitary, county council or equivalent level; other local public bodies will however continue to be consulted.

1.10 To make the process more transparent and consistent, the consultation period for proposed removals will be extended from 42 to 90 days and Ofcom will issue consultation guidance. Ofcom is changing the definition of a ‘site’ - this determines which PCBs are subject to the local veto – from 100 to 400 metres. There will also be greater freedom for BT and Kingston to use cashless PCBs where boxes are subject to repeated vandalism or the box is used primarily for emergency purposes.

Services for customers with disabilities

1.11 Universal Service measures provide access to, and affordability of, a range of essential services for customers with disabilities. A key service is the text relay, which is highly valued by customers. However, it needs to evolve as demand and technology changes. A Stakeholder Advisory Panel for the relay service will be established and an annual plan and report on the operation of the service will be published. These changes will improve transparency and accountability. A study into a video relay and captioned telephony service will be carried out.

Provision of connection at speeds that permit functional internet access

1.12 BT and Kingston are required to provide a connection upon reasonable request and at uniform prices, irrespective of geographical location. This requirement is particularly valuable to customers in remote rural areas whom the market might otherwise not serve. Where installation of a new line costs £3,400 or less, BT sets a standard charge. Where installation will cost over £3,400, BT requires the customer to pay the excess costs (plus its standard connection charge). Ofcom has concluded that a threshold is a sensible approach and that the £3,400 level is reasonable. Ofcom is now proposing to consent to BT charging non-uniform prices above £3,400 and proposing to publish guidance which will suggest BT applies the standard charge when costs exceed £3,400 for particularly vulnerable customers.

1.13 The obligation on BT and Kingston to provide a connection upon reasonable request encompasses the provision of a narrowband connection capable of ‘functional internet access’ FIA. Guidelines on FIA were issued in 2003 which said that users should be able to expect connection speeds of at least 28.8 kbit/s. It also set out measures that universal service providers should take in response to complaints about data speeds. The Guidelines have been beneficial and Ofcom has concluded that no significant changes are needed at this time. In particular, the benchmark minimum speed will remain at 28.8 kbit/s.

Costs and benefits of providing USO

1.14 USO is currently funded by BT and Kingston as the obligations have not been considered to represent an unfair burden on them. In the consultation document Ofcom updated estimates of the costs and benefits to BT of providing USO. These suggested that since 2001 the costs of serving uneconomic customers have fallen significantly while the costs of providing uneconomic payphones has risen sharply by a similar amount. Benefits from providing universal services arise primarily from brand image and advertising on PCBs. Ofcom estimated that the benefits have remained broadly stable. We estimated the current costs of USO for BT are around £57-74m and the benefits are around £59-64m. Ofcom has concluded that these estimates are reasonable and believes that there is unlikely to be an undue financial burden currently on BT as a result of USO. However, Ofcom intends to carry out a further cost benefit analysis of the provision of USO once the changes to the obligation set out in this document have been introduced. This study will begin in 2006 and will then inform a decision whether a full scale review under the Act is required.

The full document is available below

• Review of the Universal Service Obligation [pdf]
  Full print version
• Datganiad ac Ymgynghoriad ar y Rhwymedigaeth Gwasanaeth Cyffredinol [pdf]
• A statement and consultation on the Universal Service Obligation - a Plain English Summary
• Responses

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