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Executive Summary

1.1 Under section 3(1) of the Communications Act 2003 (the ‘Act’) , it is Ofcom’s principal duty, in carrying out our functions:

• to further the interests of citizens in relation to communications matters: and
• to further the interests of consumers in relevant markets, where appropriate by promoting competition.

1.2 The Consumer Experience is the first in a series of annual publications which will report on Ofcom’s progress in carrying out this duty and specifically on how regulatory developments in the communications markets are affecting citizens and consumers.

1.3 This policy assessment and the accompanying research report examine consumer experiences in respect of fixed and mobile , internet and digital broadcasting services.v[^(-1-)] Neither report covers broadcasting content issues as Ofcom reports on these separately.

1.4 The report focuses on four areas:

• Choice and range: levels of customer satisfaction , the range of services available and price changes
• Access: availability and take-up of services
• Empowerment: awareness of suppliers, access to comparable information and ability to switch suppliers
• Protection and concerns: complaints to Ofcom and key consumer concerns

1.5 Looking forward, we identify those issues that will be important priorities for us as technology changes and services converge. Convergence and bundling of services in particular offer potentially significant benefits to consumers in terms of increased choice and flexibility , lower prices and a single point of contact for bills and service provision. They may however also increase complexity for consumers in comparing services and switching providers. We want to make sure regulation facilitates the positive developments while addressing the potential risks appropriately.

Choice and range

1.6 The first area of the consumer experience we consider is choice , comprising customer satisfaction , price changes and the range of services available.

1.7 Central to Ofcom’s approach to consumer policy is that consumer interests can in general best be served by promoting effective competition in the provision of communications services. Competition can lead to lower prices and innovation in products and services.

1.8 As an outcome of Ofcom’s Strategic Review of Telecommunications (‘the Telecoms Strategic Review’) , BT has to provide equivalent access to its competitors as it does to its own retail business. In fixed markets , the introduction of Wholesale Line Rental (WLR) has ensured competition to BT in the provision of lines and calls across the UK .

1.9 The research report shows that competition , investment and innovation are continuing to drive price reductions for fixed , mobile and broadband services. A household bill for a ‘basket’ of these services has fallen in real terms from approximately £113 a month in 2001 to £76 a month in 2005.

1.10 2006 saw the increased availability of bundles of products , combining different services such as broadband , fixed line , mobile and digital television into packages. These bundles often contain a ‘free’ element , often ‘free’ broadband linked to the customer taking other service packages. For instance , Sky launched ‘free’ broadband with some of its television packages and Carphone Warehouse ‘free’ broadband for customers who purchased certain calls packages. Although the impact of bundles does not feature significantly in this year’s report , we expect them to continue the downward pressure on prices in future years.

1.11 The range of choices available to consumers within services has continued to increase. In 2005 most of the mobile network operators introduced the option of live television streaming over mobile with a range of pricing structures available. When fixed broadband was introduced 512kbit/s was the common speed available; now speeds of 2Mbit/s , 8Mbit/s , 10mbit/s and 24Mbit/s are often options available , depending on the distance of customers from the exchange or the quality of the network.

1.12 Digital television services are available to consumers though digital satellite , digital terrestrial television (‘Freeview’) , digital cable and in some areas via broadband. There is an increasing choice of television channels available to consumers. There are over 400 channels available on all digital television services including over 40 on digital terrestrial television

1.13 Digital radio is available across the UK through a range of service platforms - the internet , digital television and digital audio broadcasting ( DAB ) radio. The number of radio stations broadcasting in the UK on AM , FM or DAB, excluding very local community stations, increased from 372 in 2004 to 384 in 2006.

1.14 Consumer satisfaction across communications markets has increased significantly since 2004 largely driven by increased satisfaction with value for money. As a comparison , this brings levels of satisfaction with communications services in line with those for banking and higher than those in the energy markets.

1.15 Ofcom will continue with vigorous measures to promote competition in communications markets, including ensuring the full implementation by BT of the undertakings resulting from the Telecoms Strategic Review.

Access

1.16 The second area of the consumer experience we consider is access, including availability and take-up of services.

1.17 For fixed line services , Ofcom’s policy objective of universal availability has been met , guaranteed by the universal service obligation (USO) , although a limited number of households in remote locations may face higher charges for connection. Take-up of fixed line services appear to have stabilised at 91% following a period of growth of mobile-only households.

1.18 After a period of growth , coverage and take-up levels are relatively high and stable for 2G mobile services. 99.9% of the UK population live within postal districts that have at least one operator with at least 75% area coverage and 94.6% of the UK population live within postal districts that have that level of coverage by four operators. Lower levels of coverage are reported in rural areas.

1.19 Around 80% of adults have a mobile phone. The UK has higher take-up rates of mobiles than France , Germany , Ireland , the Netherlands , Sweden and the USA. Of the countries surveyed by Ofcom only Italy showed a higher number of mobile subscriptions.

1.20 To address limited or no 2G mobile coverage in some rural areas , Ofcom will be exploring with providers the possibilities for introducing roaming for 999/112 calls. We will also consider issues around the lack of mobile coverage in some rural areas more generally.

1.21 Ownership of personal computers continues to increase , reaching 68% of consumers. However only around a third of over 65s and under a half of lower income households have a PC. The number of consumers connecting to the internet at home has increased from 50% in 2003 to 61% in 2006.

1.22 Availability of broadband has reached over 99% of customers. Currently 72% of internet households use broadband. Internet and broadband use remains lower amongst customers over 65 and in low-income households but these groups have seen significant increases in use of the internet and broadband over the last year.

1.23 In terms of international comparisons of take-up of broadband , the UK is slightly ahead of the US and France and significantly ahead of Italy and Germany. However , the UK is behind Japan and the Netherlands.

1.24 We believe that the promotion of competition will create new investment, innovation and price competition which will drive availability and take-up in broadband markets. Ofcom is looking to achieve this by ensuring access by competitors to BT’s local loop on a wholesale basis and through Local Loop Unbundling (LLU).

1.25 Approximately 98% of households across the UK are able to receive digital satellite television , at least 73% are currently able to receive DTT and 45% of households can access digital cable. Take-up of digital television continues to increase: around 70% of households now have digital television. As with broadband services , lower levels of take-up are found amongst older and lower-income customers.

1.26 On DTT, we have confirmed coverage plans which will eventually provide the service to 98.5% - the same proportion of households currently reached by analogue providers – when the analogue TV signal is switched off progressively through ‘digital switchover’. Although Ofcom is not responsible for dealing with the majority of consumer issues raised by digital switchover , we work closely with Digital UK , the body responsible for managing the switchover process. We recently published a report on viewers’ priorities arising from switchover and will be monitoring developments and reporting periodically.

1.27 79% of households have access to digital radio across all the platforms on which it is provided - the internet , digital TV and digital audio broadcasting ( DAB ) radio - although fewer than 32% of customers say they listen to digital radio. Availability and take-up of digital radio can be expected to accelerate in line with growth of the service platforms on which it is provided , when Ofcom awards the second national licence and new local licences , as industry rolls out and promotes services and as the price of DAB sets continues to fall.

1.28 As technology changes and services converge and as access to communications becomes increasingly important for people to play a full part in the social and economic life of the country , examining issues around the extent of the availability of services throughout the UK and the take-up and use of services by all customer groups will be a priority for us.

1.29 Issues around the take-up of the internet and broadband services will in particular be challenging as they are affected by broader socio-economic factors – exemplified by the low take-up of PCs by the over 65s and in lower income households. Nevertheless these issues are important in delivering the interests of citizens in communications services and we will need to consider new approaches and the roles of Ofcom and other stakeholders in delivering these social outcomes.

1.30 We will seek to understand further and identify the nature of obstacles to delivery and take-up , assess their significance and consider whether we can or should act, either directly or through a facilitation role , to remove or overcome them. To address these issues we will shortly be launching a new project on digital inclusion which will operate alongside our on-going work on media literacy and our research programme.

Empowerment

1.31 The third area of the consumer experience we consider is empowerment. This is made up of awareness of alternative suppliers, access to comparable information and the ability to switch supplier.

1.32 Consumers need to know how to get the best possible outcomes from their dealings with the market and to secure the benefits of competition. This means they need to have the confidence , information and understanding required to enable them to make rational , informed choices between providers or services and to seek the best deals for themselves from their current providers or by changing suppliers.

1.33 Ensuring that consumers are empowered becomes more challenging as the competitive market and convergence delivers more choice for consumers - with services increasingly becoming available over different platforms and with an expanding range of options and packages available for each service.

1.34 Awareness of more than one supplier for major services has increased significantly over the last 18 months linked to increased competition in the fixed line and broadband markets. We believe that with high levels of competition this trend will continue.

1.35 Over 80% of consumers are able to identify at least one place to go for trusted comparative information on service providers. Consumers say they find it easier to compare costs than to compare quality of service. Approximately one quarter of telecoms and internet consumers (ranging between 21% and 27%) find it difficult to make cost comparisons; around a third say they have difficulty comparing quality of service.

1.36 Ofcom has operated the ‘PASS’ accreditation scheme for third party services which supply accurate and impartial information, and enable consumers to compare the prices of different providers. We intend to review and relaunch this scheme. We believe that a new scheme, offering consumers quality-assured price comparison services for both single and bundled communications services - which is promoted by Ofcom for consumers to use - would be the most effective means of ensuring wide availability of effective price comparison information. We will be publishing details of the new scheme shortly.

1.37 Ofcom has initiatives underway to promote the provision of quality of service information. We have directed certain fixed voice providers to publish quality of service indicators which are published on an independent website www.topcomm.org.uk , launched in July 2006. A review of the initiative is exploring suitable parameters to capture broadband quality of service. The mobile operators have commissioned independent drive round surveys measuring voice quality and geographic network performance , which began in August 2006 ( www.topnetuk.org ). Ofcom is also working with the mobile industry to develop customer service measures and suitable tests for data services

1.38 Just over a third of consumers in the fixed and mobile markets have ever switched suppliers. As a comparison , switching levels in mobile and fixed markets are similar to those in energy markets but lower than those for insurance services (where the annual renewal may stimulate switching).

1.39 However the data indicates that many customers who have not switched are still actively participating in the market. 40% of fixed-line customers and 36% of mobile customers have changed tariff packages with their current supplier at some stage. 53% of internet customers have changed their tariff or package with their existing ISP whereas only 28% have switched supplier.

1.40 Between 84% and 93% of those who have switched in each of the communications markets said it had either been very or fairly easy to change their supplier.

1.41 Despite these positive results , significant problems in switching suppliers are emerging for some services particularly in relation to customers switching broadband services. We believe it is vital that consumers can compare and change providers and products easily. Ofcom’s aim is to establish consistent principles on customer migrations and switching across a range of communications services.

1.42 Ofcom is currently consulting on proposals to make it easier for broadband customers to change suppliers. These will set a new general condition which will require providers to ensure customers can obtain broadband service and switch providers with minimal disruption. This will include a requirement for suppliers to provide a Migrations Authorisation Code ( MAC) on request. The MAC is needed for customers to be able to switch providers without loss of service during the transfer.

Protection and concerns

1.43 The fourth and final area we consider is consumer protection, which includes analysis of complaints to Ofcom and key consumer concerns.

1.44 Consumer protection is a priority for Ofcom. Modern communications systems can provide ineffective or dishonest suppliers with easy access to consumers and new technologies can give rise to new forms of harm. Though desirable in encouraging choice and value for money , the growth of competition can sometimes contribute to consumer protection problems through unfair selling practices and participation by dishonest providers.

1.45 Ofcom has an important role in ensuring that communications markets are fair and that consumers are protected against harm. Our work aims to make sure that scams and unfair practices are prevented from occurring as far as possible and that when they do , we respond effectively.

1.46 The research for this report covers the levels and types of consumer complaints recorded by Ofcom’s Contact Centre and other consumer bodies.

1.47 The top three complaints about telecommunications – fixed, mobile and internet - services made to Ofcom’s Contact Centre relate to:

• Customers being transferred to another supplier without their permission (‘slamming’);
• Problems experienced by customers switching broadband supplier due to the need for the Migrations Authorisation Code to proceed with the transfer; and
• Customers not being able to take up broadband services because of the presence of a ‘tag’ or ‘marker’ on the line left by a previous supplier.

1.48 The main consumer complaints to Ofcom about broadcasting services relate to content which is outside the scope of this report. Details of our decisions in response to complaints about television and radio programme content are published separately on our web site at http://www.ofcom.org.uk/tv/obb/.

1.49 We have also asked consumers directly what concerns they have more generally about communication services. The main additional issues identified by consumers related to internet content and security , calls to fixed lines using automated calling systems (‘silent calls’) and telephone scams.

1.50 In response to these problems, we have adopted an increasingly vigorous approach to consumer protection, both actively enforcing existing regulations and implementing new measures to tackle new issues as they emerge. The actions which have been taken so far include:

• introducing tough new rules to combat mis-selling and slamming in respect of telecommunication services. We have enforced these rules with action taken against the worst offenders;
• reducing the potential for silent calls and the distress they cause to consumers through the introduction of new rules and enforcement action in 2006; and
• improving the effectiveness of the regulation of premium-rate services by enhancing the ability of the regulator, ICSTIS, to take effective action against those involved in premium-rate scams.

1.51 We need now to reinforce our efforts to protect consumers from harm and to strengthen the culture of regulatory compliance within industry. We will make sure we take effective and speedy enforcement action against those who flout regulation. We will also make sure the rules for protecting consumers meet the challenges of the changing communications markets and the needs of consumers.

1.52 With internet protection , the responsibility for dealing with issues around accessing inappropriate content and protection against fraud lies mainly with other bodies such as the Home Office and Financial Services Agency. In June 2006 we published research which revealed the importance of effective industry self-regulation and consumer empowerment in addressing consumer protection issues on the internet. This research is intended to inform the current debate about the most appropriate approach to protecting consumers online as the European Commission takes forward proposals to revise the regulation of audio-visual content across Europe.

1.53 Ofcom’s primary activities in this area have been around our work on media literacy. We are aiming to achieve a greater understanding of the levels of media literacy in the UK and encourage greater awareness of, and confidence and competence in, the use of new communications technologies.

Conclusions and next steps

1.54 Our research indicates that competition and regulation are delivering significant benefits to consumers in terms of falling prices , increased satisfaction and greater range and wider availability of services. We will maintain our efforts to promote effective competitive markets across all communication services to ensure that consumers continue to benefit in this way.

1.55 Our regulatory principles state that we will operate with a bias against intervention , but with a willingness to intervene firmly , promptly and effectively where required. Over the last year we have increased our efforts on protection and empowerment issues – in particular around switching and misselling. The research confirms that we are right to identify these as priority areas for intervention and that progress has been made. We need now to continue and reinforce our efforts through our active enforcement programme and major policy projects.

1.56 We have a range of policy and research work underway which addresses issues around those living in rural areas , older people , children , disabled customers , those from ethnic minorities and customers with low-incomes. This research again shows that progress is being made but as technology develops and services converge , examining issues around the extent of the availability , take-up and use of services by all customer groups and around the importance of services for social inclusion will be another important priority for us.

1.57 We will also need to consider the implications of convergence and increased service bundling in terms of market complexity. The availability of different bundles of products (such a fixed telephony/broadband and fixed telephony/broadband/digital TV) can be attractive to consumers , not only from a cost perspective but also because of increased ease of use and single point of contact. However because each provider offers a bundle with slightly different characteristics , this can also mean consumers cannot easily move or change services , and find difficulty comparing offerings. We will therefore aim to ensure that consumers have access to easy switching processes and comparative information.

1.58 We would welcome comments from stakeholders on these research findings and the consequent policy conclusions both in response to this document and to our forthcoming consultation on Ofcom’s Annual Plan for 2007/8.

Footnotes:

1.- Ofcom’s consumer policy consultation - published in February 2006 - asked for stakeholders’ views on what indicators would provide an appropriate basis for monitoring the consumer experience. The indicators used in this report take on board the comments we received.

The full document is available below

• The Consumer Experience - Telecoms, Internet and Digital Broadcasting [pdf]
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