The issue
3.1 This chapter sets out Oftel s proposals for creating more choice for:
In terms of measurable outcomes these proposals aim to increase the telephone penetration rate and reduce the number of customers who might otherwise end up facing payment difficulties. It takes account of responses to Oftel s previous consultation document and the advice of a working group established to look at this issue.
3.2 This chapter covers:
3.3 The General Household Survey, 1995 shows that around 93% of households have a home phone, leaving about 1.6 million households without a home phone. Based on BT research, it is estimated that 0.25m households without a fixed line have access to a mobile phone. This leaves about 1.35m households without a fixed line or mobile phone. Of these twothirds indicate, in market research surveys, that they would like a home phone but are deterred from having one, mainly because of the cost. Thus, a potential 0.9 million households would like to get connected to the telephone network. The remaining third include those who do not want a phone, those between phones and those otherwise temporarily without a phone.
3.4 Research commissioned by both Oftel and operators shows three main reasons why households do not have access to a home phone or have difficulty staying connected to the telephone network:
3.5 The extent to which connection charges are a barrier to takeup is likely to be reducing with, for example: lower or free connection offers by a number of newer operators including cable operators; BT s £9.99 connection fee for customers with an existing BT line to their home; and BT s revised deposit policy which means that most new customers no longer have to pay a deposit but instead agree a Call Level (spending limit) for their first year of service.
3.6 Nevertheless, whilst 34% of BT customers do not pay any connection charge for same day takeover and 50% pay £9.99 for connection, the remaining 16% have to pay the full connection fee of £116. The proportion of households without a phone who are liable to pay the full BT connection fee may be higher as they tend to be concentrated in rented housing which is less likely to have a BT line. BT currently offers customers who face the full £116 connection fee the opportunity to spread the charge over five instalments.
3.7 Research by BT indicates that the majority of households without a home phone considered £9.99 an affordable connection charge although few were aware that connection charges are this low. Nevertheless, £116 for connection remains a considerable deterrent to some households without a BT line to their premises.
3.8 BT is required by licence condition to offer a low user scheme to residential customers. BT fulfills this by offering the Light User Scheme (LUS). LUS was introduced in January 1994 and was the successor to a series of residential low user schemes which date back to 1983 before the privatisation of BT - the Low User Rental Rebate Scheme (1983 to 1991) and Supportline (1991 to 1994). LUS offers residential customers with low call bills a rebate off quarterly line rental.
3.9 LUS offers a maximum rebate of 61% off line rental and ensures that the 21% of customers with the lowest call bills are eligible for the scheme, with the exception of customers or lines which are excluded (eg second lines, burglar alarm lines and phones in second homes). There are 2.9m customers on LUS of which 2.4m customers are receiving a rebate at any time (this difference occurs because customers remain on the scheme for a period even if they are not receiving discount in a particular quarter).
3.10 Assessing the extent to which rental and call charges are a barrier is difficult, as generally customers tend to underestimate rental charges and overestimate call charges. Qualitative research by BT amongst households without a home phone suggests that BT s Light User Scheme (LUS) charges are generally regarded as affordable.
3.11 Another reason why some households do not have a home phone is concern over the build up of debt. Research shows that many households without a home phone are already facing bill payment difficulties or arrears in other areas. The fear of an additional bill is a considerable deterrent to taking telephone service. For example, BT research shows that 59% of households without a phone who cited cost as reason for not having a phone were afraid of running up large bills. The unpredictability of bills with payment in arrears for calls and the lack of an effective means of controlling telecoms spend exacerbates the problem of the build up of debt. Unlike water, gas and electricity there is no equivalent metering system for home telephone use which allows customers to monitor and control their spend.
3.12 This analysis suggests that to improve access to the telecommunications network packages are needed which include the following features:
3.13 An important issue arising from Oftel s earlier consultation is how to ensure that any low cost service packages are effectively targeted on the intended market, and do not attract significant numbers of free loaders . In particular, low cost packages should not be available for second lines, alarm lines or second homes. This could be achieved by combining all the following characteristics: offering more restricted service; requiring all payments to be made in advance; and restricting the total value of calls a customer can make. This would help make service packages less attractive to customers who value the unrestricted nature of the standard service.
3.14 Whilst deterring free loaders these features are likely to be welcomed by many households who worry about the build up of debt and need a very basic service at a cheaper price than standard charges. As customers are not exposed to any debt, telephone companies would be able to reduce the resources currently deployed on credit management.
Current Provision
3.15 Although LUS appears to meet the requirement of offering affordable tariffs, especially when averaged on a weekly or monthly basis, it does not overcome the other barriers identified above. Based on responses from consumer representatives to its previous consultation and its own analysis, Oftel considers that LUS suffers from the following drawbacks:
3.16 In addition to LUS, the market is increasingly delivering improved access to the network on a commercial basis, through initiatives such as: free itemised billing; BT s new deposits policy; services which allow customers to check their call spend by phoning an enquiry number; lower connection charges; and more vigorous price competition from cable companies and new entrants like Ionica. Oftel believes that other developments will also help improve access to the network and controllability of telecoms costs such as selective call barring if it is made available to customers free of charge.
3.17 Oftel s previous consultation document posed the question of whether further regulatory action is needed to ensure access to a home phone for all customers who want one or whether this could be guaranteed by market forces alone. Although telephone penetration levels in the UK continue to rise, the analysis earlier in this chapter indicates that some customers still face a number of barriers in getting connected and staying connected to the network. Operators themselves recently assessed (for the purposes of the price control review) that there will not be full competition across different parts of the residential market until 2001. Oftel noted, in its review of BT s price control arrangements, that although BT price controls covered all customer groups, the benefits had gone disproportionately to profitable customer groups where BT faces greatest competition - business customers and higher spending residential customers. Therefore, Oftel has concluded that relying solely on the market is not appropriate at present. However, it recognises that the requirement for regulatory action in this area needs to be kept under regular review.
Possible Ways Forward
3.18 In view of the inadequacies of LUS, Oftel, with input from consumer representatives, has been working with BT on schemes to replace BT s LUS licence obligation. Oftel has proposed that, as a priority, a new Lifeline service package should be offered by BT, in addition to the LUS, which would provide a cheap, incoming calls only, service. In the longer term, Oftel proposes replacing LUS with a limited outgoing calls service package.
Lifeline
3.19 This service package will offer a first step on the ladder for customers who want to join the network or stay connected to it just to receive incoming calls or make emergency calls. Customers will have the benefit of a phone in their home enabling them to be contacted by friends, relatives, their GP, social agencies and so on. They avoid any debt risk because their line is programmed to bar most outgoing calls. They will be able to make outgoing calls to the emergency services, customer services and fault repair services. A low fixed charge will be payable in advance giving customers complete control of their telephone expenditure. The scheme would be available to both new and existing customers.
3.20 As this service is aimed at getting customers connected to the network Oftel considers that the charge for connection should reflect this. Oftel proposes that the connection charge should be fixed at BT s lowest connection charge of £9.99. This would be paid by all new customers joining Lifeline regardless of whether or not they have a BT line to their home. Existing BT customers would pay no fee for moving to this package. The fixed charge should reflect the very limited nature of the service and the objective of increasing the penetration rate. Oftel proposes that the fixed charge should be £6.50 a quarter including VAT which is equivalent to 50p per week for staying connected to the telephone network. Annual increases by no more than the RPI will be permitted.
3.21 Market research conducted by BT suggests that Lifeline would
be attractive to customers without a phone and should, if effectively
marketed, encourage a number of additional households on to the
network. This service particularly appealed to those households
without a phone who are very poor and regard the phone as an inaccessible
luxury and those on low incomes who are careful at budgeting.
Such a service may also be attractive to some existing BT customers
although BT research indicates that the level of migration should
not be too great. Table 3.1 based on BT research gives an indication
of likely takeup amongst households without a phone and
LUS customers.
| Likelihood
of takeup | Households without a phone | LUS customers | ||
| % | Estimated
number
(total 1.35m) millions | % | Estimated
number
(total: 2.9m) millions | |
| Very likely | 21 | 0.3 | 8 | 0.2 |
| Fairly likely | 29 | 0.4 | 9 | 0.3 |
Note: this was in response to a question about a Lifeline service costing £9.99 for connection and £9.99 for quarterly rental. A lower rental, as proposed, may lead to a different response.
Table 3.1 Likely takeup of the Lifeline service
3.22 Oftel s Consumer Panel considered this issue and felt that the concept could be expanded with a little extra development to include the capability to make outgoing reverse charge calls and calls to relevant freephone numbers such as Helplines.
Limited outgoing calls and pay as you go
3.23 This service package would provide customers with the next step on the ladder to standard charges and full service. It would allow customers to make a limited number of outgoing calls which they would pay for in advance thereby preventing any debt. When the customer reached their call limit their line would revert to an outgoing calls barred service preventing further outgoing calls. Features would include announcements informing customers that their call limit is being approached and a free enquiry number so that customers could check how much of their call limit has been spent . Preferably, any unused call allowance could be carried over to the next billing period.
3.24 An alternative way of implementing a similar service may be by using a pay as you go solution based on phone cards. Phone cards are becoming available for purchase which allow calls to be made from any phone. To use these cards the customer phones a freephone number and then enters the number on the card. They receive a voice announcement telling them how much value is left on the card. The number required can then be dialled in the normal way. If it was possible to combine these cards with a Lifeline type service and target such a package at the intended market this would meet the need of controllability and avoidance of debt identified earlier.
Oftel's proposals
3.25 BT has indicated to Oftel that it is feasible to introduce the Lifeline service in 1997. Kingston Communications Limited has also indicated the feasibility of introducing a similar Lifeline service in 1997. Therefore, subject to the outcome of this consultation, all customers in the UK should have access to a Lifeline service within the next 12 months. Oftel encourages other operators to look at similar service packages. In order to ensure the delivery of a Lifeline service by August 1997 or as soon as possible thereafter, Oftel proposes to modify BT s licence.
3.26 BT has indicated that implementation of a package similar to the limited outgoing calls or pay as you go services will require major technical development and will take around 2 years to implement. In view of this, Oftel proposes that the LUS obligation be retained in BT s licence until it is able to implement a service similar to one or both of these limited outgoing calls packages.
3.27 In order for BT to demonstrate in a transparent manner whether or not LUS and the Lifeline service are meeting their intended aim of providing improved access to the telecommunications network, Oftel proposes that BT provides information on the following indicators:
(a) quarterly takeup figures for the Scheme which distinguish whether customers taking up the Scheme are existing customers of the Licensee previously on the Light User Scheme, existing customers of the Licensee previously on the standard tariff, new customers previously without a home phone (with and without the installation of an exchange line) and/or new customers previously using other operators;
(b) sixmonthly survey data of the profile of customers on Lifeline and LUS which includes income levels and socioeconomic status details, and
(c) sixmonthly survey data on levels of awareness of Lifeline and LUS amongst the total population and households without a home phone.
Oftel will ensure that this information is published.
3.28 The revenue that BT foregoes in offering LUS counts towards the discounts it must offer customers to meet its price cap. This arrangement will continue but the amount of foregone revenue that counts towards BT s price cap will be prorated to reflect the fact that a smaller proportion of BT s revenue is regulated under the new price control arrangements from August 1997.
3.29 It is not appropriate to treat the Lifeline service in a similar way to LUS with regard to the price cap as the majority of customers taking it are likely to be new to the network.
Implementation and monitoring
3.30 Oftel will propose an amendment to BT s licence to ensure delivery of the Lifeline scheme. The draft licence condition and associated draft guidelines are at Annex 1.
3.31 Oftel will monitor progress on the development of the limited outgoing calls and pay as you go services and expects BT to make a public commitment to the introduction of such schemes by 1999.
3.32 Oftel will monitor the indicators set out in paragraph 3.27.
Questions:
2 Do respondents support Oftel s proposed amendment to BT s licence to introduce the Lifeline service?
3 Do respondents support Oftel s proposal to replace BT s LUS licence obligation in two years time?