A consultation issued by the Director General of Telecommunications on a methodology for measuring consumer savings in telecoms services.

Contents

Executive summary

Chapter 1 - Introduction and Background

Chapter 2 - Determining Consumer Rationality

Chapter 3 - Competitive context

Chapter 4 - Results of application to residential mobile and fixed markets

Chapter 5 - Interpretation and application

Chapter 6 - Consultation

Appendix A - Detailed methodology for assessing savings in the UK consumer mobile market

Appendix B - Methodology for preliminary assessment of savings in the UK residential fixed telecoms market

Appendix C - Summary of questionnaire used in mobile survey, October 2001

Appendix D – Summary of questionnaire used in fixed study, March/April 2003

S1 Well-informed consumers is one of Oftel’s key objectives. This document presents a methodology aimed at measuring progress towards this objective. This methodology will also help Oftel and, going forward, Ofcom to decide whether action is required and, if so, to properly target future regulation in this area.

S2 Well informed consumers means that they are able to exercise choice and receive the services that suit them best at prices they can afford. The focus here is in choosing the right price package which is not the sole consideration in selecting the best deal, but is probably the single most important element.

S3 In its simplest form, the methodology calculates the savings telecoms consumers could make by switching from their current tariff to the cheapest available tariff. The document suggests that the resulting estimate can be used as a proxy measure for the level of useful consumer information in any given market. However the document also suggests that factors such as switching costs and the premiums consumers are willing to spend, either for higher quality service or merely to avoid switching, must also be considered.

S4 The document applies the methodology to the UK consumer mobile market and a segment of the fixed residential market and presents some preliminary results which can be interpreted as showing that, once switching costs and premium levels are considered, the remaining savings available to relevant consumers appear relatively small. However there may be some groups of consumers who could make more significant savings and could possibly benefit from additional information.

S5 Subject to comments from stakeholders Oftel plans to extend the methodology to all relevant markets. Oftel believes that the methodology can be a key tool in helping Oftel and Ofcom determinate a proportionate level of intervention in relation to reducing the level of additional consumer expenditure.

  Chapter 1

Introduction and background

Well informed consumers

1.1 Well informed consumers is a key objective of Oftel’s strategic aim of the best deal for the consumers in terms of choice, quality and value for money.

1.2 Oftel regularly monitors progress towards meeting this objective, primarily through its consumer research programme by measuring, for example, the proportion of consumers aware of the various choices available to them.

1.3 But these measures do not consider the extent to which consumers are losing out through inadequate levels of information. An assessment of consumer detriment is essential in ensuring that future regulation in the consumer information area remains proportionate.

1.4 Such an assessment can assist Oftel in better focussing and prioritising its resources. It is not clear, for example, when the level of consumer information becomes sufficient to effectively stimulate competition. A key question for Oftel to address is when it can stop intervening in this area. This question will also need to be addresses by Ofcom.

1.5 Oftel’s Consumer Information Strategy is designed to ensure that consumer information is capable of changing consumer behaviour and that the effects of any regulatory action can be measured. But the Information Strategy recognises that even in competitive markets, there may be issues that need to be resolved by improving consumer information. For example, a misunderstanding of consumer rights may lead to some level of detriment.

1.6 The OFT Research Paper 11 ‘Consumer Detriment under Conditions of Imperfect Information’ (published 1997) defined three main ways in which consumer detriment may occur

i. consumers may not buy the product or service at the cheapest price available to them - 'pay too much';
ii. consumers may not buy the most appropriate product, given their tastes and preferences - 'buy the wrong product'; and
iii. consumers may purchase a product or service which is not the quality they assumed ex ante - "are let down by product".

1.7 This paper sets out an approach to determining the adequacy of existing consumer information by determining the level of consumer detriment in terms of additional expenditure – type (i). While (ii) and (iii) should be of concern to regulators Oftel believes that the existence of a clear inability to choose appropriate price packages is most likely to require some form of additional regulatory action. Therefore some assessment of whether this is the case is an important consideration in meeting Oftel’s goal of achieving the best possible deal for consumers.

1.8 There are also practical reasons why Oftel has focussed on this particular area. Essentially they reflect the availability of data which assists in quantification. But Oftel is also interested to determine the extent to which stakeholders believe other aspects of consumer detriment in telecoms markets are a concern and whether it is possible to quantify them.

Regulatory Implications

1.9 This approach has a number of regulatory implications and the issues involved require careful consideration. Simple measures of additional expenditure are not realistic measures of detriment simply because price is only one of a complex of factors in making purchasing decisions.

1.10 It is possible to consider other factors underlying consumer purchasing behaviour to deliver a more realistic assessment but a number of further issues need to be borne in mind in assessing the need for regulatory action.

1.11 First, consumer detriment resulting from consumers paying more than the cheapest available price should not be confused with welfare loss associated with non-competitive markets in which prices are above the competitive level. As noted in paragraph 1.5, even in competitive markets, consumers may pay more than the cheapest available price.

1.12 While this may be reflected in higher profits for suppliers it is also possible that high prices or opaque information may restrict consumer demand. It is not clear the extent to which suppliers benefit from consumers being on the wrong tariff or whether, if customers were on a more appropriate tariff, increases in usage would more than offset lower prices. These issues are important considerations in a policy context as in the latter case co-regulation may be an appropriate response.

1.13 Second, while overall there may be a relatively high level of information in any market and a low overall level of additional expenditure, there may be particular groups of consumers who are less informed and who lose out on the cheapest deal as a result. Or indeed there may be a small number of consumers who are paying high prices which contribute to an overall high level of additional expenditure. Where regulatory action is deemed necessary, targeted information initiatives may be the appropriate response.

1.14 Third, regulation must remain proportionate. Additional expenditure may occur through the deliberate action of suppliers to prevent consumers switching to a cheaper alternative. On the other hand additional expenditure may simply be the result of a low level of information. The former example is likely to require a more direct regulatory response.

1.15 Nor is it straightforward to determine the feasibility and cost effectiveness of any improvements to the level of consumer information available. It is difficult to determine the scale of any problem, and therefore the need for regulatory action, without comparable data from other retail markets. But it seems unlikely that all consumers need to be fully informed to benefit from competition.

1.16 Oftel’s consumer profile work also suggests that a significant minority of consumers can be described as active in terms of telecoms purchasing behaviour. In some markets this minority may be sufficient to drive competition, if they are, for example, a particularly profitable group.

1.17 Figure 1.1 provides a summary of the decision process. This document discusses a possible approach to tackling these issues, based on a detailed assessment of the mobile market and a preliminary assessment of a segment of the residential fixed market.

1.18 Oftel has developed the methodology described in this paper with a view to helping it assess the scale of one of the main potential disadvantages suffered by consumers due to factors other than a lack of effective competition. But Oftel is also keen to establish the extent to which the methodology can itself be used as an indicator of effective competition.

1.19 Subject to feedback from stakeholders, Oftel intends to apply the methodology to other telecoms market sectors to allow it to better focus its and Ofcom's work and to continue to look out for any developments in assessing equivalent types and levels of consumer disadvantage in other non-telecoms markets.

1.20 But Oftel is also keen to establish the degree to which stakeholders are concerned about other types of detriment which may arise through imperfect information and, if so, how a similar methodology may be developed to assist its measurement.

Questions

Do stakeholders agree that an assessment of detriment is an appropriate measure of the adequacy of consumer information?

Do stakeholders agree that additional expenditure is the most likely form of detriment arising from imperfect information in telecoms markets?

To what extent do stakeholders believe that there exist other examples of detriment arising from imperfect information which should be a regulatory concern? If so, stakeholders describe whether and how these other kinds of detriment can be measured?

Figure 1.1: Deciding on appropriate level of intervention

  Chapter 2

Determining Consumer Rationality

2.1 Although it is conceptually simple to measure the difference between the actual prices paid and the cheapest price available there are a number of factors to consider before determining the precise level of additional expenditure in a given market.

2.2 In any market consumers will have the choice of a range of prices or tariffs. Differences in price will reflect different user preferences such as quality features or payment mechanisms. Consequently it is unrealistic to expect all consumers to pay the cheapest available tariff.

2.3 Similarly, markets often display elements of voluntary inertia towards migrating to a cheaper alternative product or service. For example, consumers may be less inclined to switch in a general environment of declining prices and/or if expenditure levels are a relatively low proportion of overall income. Many consumers will also factor in search costs in determining whether it is worthwhile switching to a cheaper deal.

2.4 There will also be a natural lag period between price changes and consumer switching whilst consumers consider the merits of different offerings. So instantaneous adjustment to price changes by consumers is unlikely.

2.5 While there are reasons why a consumer would pay something other than the cheapest available price it is not straightforward to measure the value of any benefits obtained from doing so. The OFT paper also acknowledged that it is unrealistic to expect all consumers to pay an optimal price but rather a ‘rational’ price – that is one based on information collected after a rational search process.

2.6 Taking account of these points it is possible to construct an approach to assessing consumer detriment on the basis of estimating levels of additional expenditure, defined as expenditure over and above the optimal amount.

Measurement issues

2.7 As noted in paragraph 2.1 it is straightforward to measure the level of additional expenditure in a given market simply by comparing actual expenditure levels with the minimum prices available for a particular good or service. Actual expenditure levels are easy to establish, either from consumer surveys or industry revenue data. And in general it is also easy to establish the lowest prices available for particular goods or services, through price surveys.

2.8 There are, however, a number of factors which make the calculation of ‘optimal’ telecoms prices less straightforward and a fuller discussion of the relevant issues is presented in Appendix A. Indeed this relative complexity is often cited as a reason for a need for improved consumer information on telecoms tariffs. Nevertheless the principle of comparing actual and optimal prices appears a reasonable starting point for an assessment of consumer detriment.

2.9 As shown in Figure 1.1, a low level of additional expenditure (or a large number of customers paying optimal prices) is likely to be indicative of a high level of consumer information. What is less clear, however, is the extent to which a high level of additional expenditure (or a low number of customers paying optimal prices) is indicative of consumers being poorly informed.

2.10 What is also required is a measure of the extent to which consumers are actually making purchasing decisions on price alone. For example, many consumers will ‘trade-off’ price with specific quality features of individual goods or services. In some cases consumers will rank certain quality factors above all aspects of price. It is necessary to exclude these consumers from any calculation of additional expenditure.

2.11 Even where consumers do value price it is possible that savings may not be achievable given that actual costs can be incurred when switching supplier. This consultation does not intend to address the issue of whether switching costs are fair or reasonable. But the proposed methodology does attempt to consider these costs in the calculation of additional expenditure.

2.12 It is also necessary to consider those factors which although largely independent of the market in question may influence purchasing behaviour within it. It seems likely, for example, that if where the relative level of expenditure in a given service is low the desire to achieve any additional savings will also be low. This is particularly true if additional switching costs are to be incurred in moving to a cheaper service. 

Figure 2.1: Elements of average household expenditure

Source: ONS, Expenditure and Food Survey, 2001-02 © Crown copyright 2003

2.13 Figure 2.1 shows that in total, all fixed and mobile telecoms expenditure represents around 2.5 per cent of overall household expenditure or less than £10 a week on average. Of course, telecoms expenditure is more important for some groups of consumers, in particular low income consumers. But it is interesting to note that telecoms expenditure is less than 4 per cent of total expenditure for even the lowest income decile households.

Assessing the need for regulatory action

2.14 But while it is likely that overall expenditure and income levels are likely to be an important determinant of customers’ likelihood to seek out a cheaper deal it is also important to determine the level to which consumer inertia arises through a lack of information or confusion. For example, consumers may decide that the difficulty in working out the cheapest available service is too great and will settle for ‘any’ service irrespective of price.

2.15 Where such confusion is identified regulators must also consider the extent to which this is the result of deliberate action by suppliers. This may require a regulatory remedy other than improved consumer information. But it also important for regulators to acknowledge that many supplier actions to discourage switching can be regarded as positive effects, reflecting genuine competitive pressures, e.g. by providing a high level of customer service, timely fault repair etc.

2.16 Oftel has used a consumer survey approach to determine consumers attitudes to switching. Oftel accepts that such an approach does have some weaknesses in that survey responses do not necessarily reflect real life experience. For example, while a consumer may suggest in response to a survey question that he or she would be willing to switch for a saving of, say, 10 per cent a saving of 15 per cent might actually be required to encourage the switching to take place. On the other hand, it could be that switching thresholds given in response to consumer surveys, may be artificially high if there is a misconceived perception of switching costs.

2.17 Similarly Oftel is aware of the difficulties in quantifying the precise level of price-quality trade-off but is unaware of any real alternatives to a survey based approach. But Oftel is aware that survey design in this area can be considered an iterative process. For example Oftel has made what it believes to be improvements in question design for its current study in the fixed telecoms market based on its experience during the mobile study carried out in late 2001.

2.18 Notwithstanding potential improvements to questionnaire design, Figure 2.1 develops the process summarised in Figure 1.1 and provides a broad framework for measuring both the number of consumers losing out through a lack of information and the level of savings which could be achieved based on measuring additional expenditures given levels of existing prices and consumption patterns.

2.19 Chapter 4 provides a summary of the practical application of the methodology described in Figure 2.2 to the UK consumer mobile market. To help assess the applicability of its methodology across other telecoms markets Oftel has also undertaken a smaller scale study of a segment of the residential fixed voice telephony market. But while these results can help to focus efforts in the respective markets there is a need for better comparators from other industries to assess the relative position of all telecoms customers.

Questions

Do stakeholders agree that, in principle, it is important to measure the degree to which consumers base their telecoms purchasing decisions on a range of factors other than price?

Do stakeholders support Oftel’s approach to the assessment of rationality? Are there any alternatives? 

Figure 2.2 : Generic approach to assessing available consumer savings

Chapter 3

Competitive context

3.1 Prior to undertaking any assessment of additional expenditure in any market it is important to understand the context of the existing level of competition which is itself likely to have some bearing on consumer behaviour.

3.2 Increased competition in all telecoms markets has led to falling prices for all services and for residential customers prices generally compare favourably with those abroad. This has contributed to increased levels of use and take-up of new services. Overall, consumer satisfaction levels are high. This is important in considering the likely impact of any improved consumer initiatives.

Figure 3.1 Real price changes in fixed and mobile telecoms 1998-2002

3.3 Furthermore, as noted in paragraph 1.16, Oftel's consumer research has identified a range of typical profiles which are important in better understanding consumer behaviour. These suggest that only a proportion of consumers can be considered active participants in telecoms markets. It may be, therefore, that the proportion of consumers who need to be well informed to properly stimulate competition is rather less than total.

3.4 There are also particular characteristics of each of the markets under consideration which need to be borne in mind. 

Mobile

3.5 First, as Oftel recognises, the UK retail mobile market is prospectively competitive. At the simplest level this is demonstrated by the transformation of mobile phones into a mass consumer product. Competition has been the spur for companies to drive down prices, widen their customer base and provide new services which consumers want to buy and use. Each of the existing four UK networks have a broadly equal share of subscribers together with some service provider competition.

3.6 The level of switching in the UK mobile market is significantly greater than that in the fixed market and is broadly comparable to those in gas and electricity. The level of network churn is over five per cent per quarter and there is also a large amount of movement between packages within networks.

3.7 It is also important to remember that in the UK, and other mobile markets, the majority of customers are pre-pay subscribers. For these customers mobile service can be considered a frequent repeat purchase. Also, for these customers there are no contract tie-ins. It can be argued that, together, these factors lead to greater levels of information and switching opportunity.

3.8 The average level of household expenditure on mobile services has increased as penetration levels have increased, although strictly speaking mobile should be seen as an individual rather than a household good. No comparable figures on the proportion of individual expenditure on mobile telephony are available. But it is worth pointing out that data collected from each of the four main mobile network operators suggest that average pre-pay spend (relevant for around two-thirds of all residential mobile users) is around £8.50 per month. This does not appear to be particularly large and the levels of savings available are not likely to be high in monetary terms.

3.9 While post-pay spend levels are considerably higher there are also various non-price factors particular to the mobile market which are likely to influence these consumers’ purchasing behaviour. Oftel research shows that a majority of contract customers consider coverage, line quality, network and customer service, and handset choice important factors in choosing a mobile service. Indeed these factors are also important for a large number of pre-paid consumers. 

Figure 3.2 Factors considered important when purchasing mobile service

Fixed

3.10 The level of competition in the fixed market is somewhat different to that in the mobile market. BT retains the vast majority of residential access lines and also has a large share of all call types. While cable providers have been relatively successful in growing market share in their franchise areas the take-up of indirect access providers by residential consumers is considered by many to be disappointing.

3.11 The lower level of competition in the fixed market relative to the mobile market might lead one to conclude that there is a lower level of information in the fixed market and consequently a greater risk of excess consumer expenditure.

3.12 However it is worth bearing in mind that through a combination of regulation and competition, prices continue to fall. The average proportion of household expenditure on fixed telecoms has remained stable at around 1.5 per cent for over a decade despite a large increase in both voice and data use. The following chart attempts to illustrate how much more consumers are getting for their money by comparing spend at 92/93 usage levels with actual usage levels. 

Figure 3.3 Household expenditure on fixed telecoms services

3.13 Figure 3.3 also shows that a significant proportion of fixed telecoms expenditure is accounted for by line rental. Indeed the picture is rather skewed by the use of an average figure. The proportion of consumers for whom the majority of fixed telephony expenditure is spent on line rental is likely to be close to half. Notwithstanding bundling of other services, currently there is little difference in access costs between alternative providers. Based on the approach adopted here, there is likely to be relatively little additional consumer expenditure on access.

3.14 Most savings are likely to be made in call costs. However the largest differences on call prices exist for international calls which are not relevant for a large proportion of consumers. Oftel research shows, for example, that only a quarter of households make international calls at least once a months.

3.15 Some savings are available for other call types but the level of savings particularly when taken relative to overall call spend data suggest that the incentives for consumer switching are likely to be reduced.

3.16 Oftel continues to promote competition in the fixed telecoms market. Recently its most notable action has been the requirement for BT to provide a wholesale line rental product. Preliminary forecasts suggest that this may have a significant effect in encouraging switching among consumers and appropriately targeted consumer information may have a role to play here.

3.17 But the discussion presented above does seem to suggest that currently there is likely to be a relatively low level of savings available to consumers. And in practice the actual level is a complex interaction between, not just, calls and access prices but other bundled elements such as TV, Internet and, increasingly, non-communications services.

Questions

Do stakeholders agree that prima facie evidence points to a reasonable level of information about tariffs in the consumer fixed and mobile markets?

Do stakeholders agree that the relative level of spend on a good or service is a key determinant of consumers propensity to switch?

Do stakeholders agree that not all consumers need to be fully informed in order for competition to be effective?

Chapter 4

Results of application to residential mobile and fixed markets 

4.1 While Oftel has interest in measuring consumer over-spend in all telecoms markets work to date has concentrated on the mobile market, primarily as a result of the finding in its 2001 mobile market review that lack of consumer awareness of different prices and tariffs was cause for concern. The OFT also identified mobile telephony as one area where consumer over-spend was likely to occur.

4.2 But there are also good practical reasons for testing the methodology in the mobile market. The market structure means that the small number of operators with relatively homogeneous products makes it straightforward to ensure fair and complete coverage of the majority of relevant tariffs in the sector. Oftel’s mobile price monitoring model is also well-established and was straightforward to adapt to use in this area.

4.3 Even given these useful building blocks there remain some complex issues to resolve before producing an accurate assessment of the level of available consumer savings. This complexity has also lead Oftel to expose the methodology to a number of industry and consumer experts prior to formal consultation. Oftel has also applied the methodology to a segment of the fixed telecoms markets to further test its application. Consequently Oftel believes the broad methodology to be robust but is keen to investigate whether there are any additional improvements which can be made.

4.4 However it is important to note that the primary purpose of this section is to present a practical example of how the proposed methodology can be applied. As the discussion below demonstrates the results remain subject to some degree of assumption and approximation. Stakeholders are asked to focus responses primarily on the methodology itself rather than focussing too closely on the results presented here, which, in any case, are made more difficult to interpret in the absence of suitable benchmarks from other industries.

Mobile

Data sources and outline methodology

4.5 In October 2001 Oftel conducted a detailed study of 3000 mobile consumers which asked a wide range of questions about their mobile usage and spend patterns. The survey questionnaire is reproduced at Appendix C.

4.6 The survey questionnaire also asked a range of questions about purchasing behaviour and from these it was possible to identify those customers who considered factors other than price to be important in selecting a mobile service. Respondents were also asked the percentage level of savings which they would require to switch to a cheaper supplier. Together this information was used to determine the proportion of customers who could be considered to be making a rational decision not to be on the cheapest available tariff.

4.7 The usage information was used to construct individual optimal spend estimates tailored to each customer’s call profile. Spend estimates were calculated using an identical method to that used in Oftel’s mobile price monitoring model and international benchmarking work.

4.8 As noted in paragraph 4.4, there remains some degree of approximation when using a survey approach to determining actual consumer spend and usage levels. For example, as described in Appendix A, survey estimates of average pre-pay spend are significantly higher than those derived from data submitted by mobile operators as part of Oftel’s market information. As the vast majority of pre-pay consumers will be residential customers the operator figures are likely to provide a good test of the accuracy of survey estimates of spend and usage

4.9 Appendix A also shows how the discrepancy in consumer and operator spend estimates can in part be explained by the difficulty consumers face in converting an irregular pattern of voucher purchase to a regular monthly spend. Spend estimates for pre-pay customers were thus re-calculated using additional information collected regarding last voucher spend and frequency of purchase.

4.10 Nevertheless there remains some degree of disparity between operator and survey estimates. For example, some customers also reported levels of usage which inferred a spend level outside the range of plausible maximum and minimum estimates generated by the price model. Appendix A also explains how the data were further cleaned prior to analysis.

4.11 Despite these adjustments the spend and usage estimates used in determining the final level of available savings could still be regarded as being subject to a large degree of approximation. Oftel believes, for example that the margin of error attached to actual and optimal spend estimates is at least 50p pence per month due to the rounding of individual spend estimates to the nearest pound. Headline results are presented on this basis but to provide some assessment of the level of confidence which can be attached to the results presented here results are also presented using for a range of other possible margins of error.

Estimating switching costs

4.12 A further consideration, however, is the extent to which switching costs should be taken into account when calculating available savings. While in some cases the costs from switching from one network to another may be zero in many cases there is likely to be a cost incurred, for example through SIM unlocking (the process through which an existing phone becomes useable on another network), number portability or the need to purchase a new handset.

4.13 The approach taken has been to assume that the average cost of switching to a new network is equivalent to an additional £1 a month. This is thought to reasonably reflect the average cost of switching to a new network amortised over the duration of a tariff although results were also calculated on the basis of zero cost and a £2 a month cost. (See Tables A3a and A3b in Appendix A.)

4.14 In practice, however, the issues surrounding handset costs are more complex. In many cases a consumer’s original purchase decision will be made on the basis of the features available on the handset. This should be reflected in the final assessment of available savings.

4.15 In general this issue is relevant primarily for post-pay customers as the choice of pre-pay handset is more limited and pre-pay customers are more concerned about price than other quality features. Additional research conducted by Oftel in October 2002 asked post-pay consumers whether they would switch to a cheaper pre-pay package if they could retain all other aspects of their existing package. Only two thirds of these consumers claimed they would.

4.16 However, it is unlikely that these consumers would be able to retain all aspects of their existing service when switching to pre-pay without some additional cost. It seems likely that suppliers would wish to recoup any handset subsidy for example. Consequently the savings available to these consumers have been estimated by recalculating the optimal pre-pay spend by adding an estimate of the handset subsidy. This is estimated to be £5.94 per month based on an average handset price of £107 and an average duration of 18 months, figures which are consistent with those used in Oftel’s last international benchmarking report.

4.17 For those respondents who claimed they would not switch to pre-pay in any circumstances, Oftel has used the cheapest available post-pay tariff as a more suitable benchmark than the cheapest overall tariff for these customers.

Lag effects

4.18 It must also be recognised that consumers are unlikely to switch immediately as soon as a cheaper tariff becomes available. There is thus likely to be a lag level of additional expenditure in this, or indeed any, market.

4.19 First, some consumers will be prevented from switching to a cheaper tariff if they are tied in to an existing contract. To account for this effect Oftel has assumed that, on average, customers have six months remaining on existing 12 month contracts. Consequently the savings available for these consumers in any given year should be reduced by half. This issue is assumed not to be relevant for pre-pay although in practice it is unrealistic to expect consumers to change packages every time a cheaper one becomes available.

4.20 Indeed generally it is not realistic to expect consumers to move immediately. The main results have assumed that on average it takes consumers one month to switch to a cheaper package with full information, and the estimate of annual savings has been reduced by a twelfth.

4.21 Finally, when the survey was carried out around 10 per cent of customers subscribed to so-called all-in-one packages which involved an up-front payment with the purchase of the handset for an entitlement to a set volume of calls. These types of package are not modelled in the price monitoring work and have now largely been discontinued. For the purposes of this exercise prices for these customers were modelled using pre-pay prices. The relatively small proportion of customers on these packages, however, meant that this assumption had a negligible effect on the overall results.

Summary of Results

4.22 Table 4.1 and Figure 4.2 present summary results. The full range of sensitivity analyses is presented in Appendix A. The estimate for the proportion of customers on precisely the correct tariff is somewhat sensitive to the assumptions regarding the margin of error on the model spend estimates. While this is a useful indicator of the level of consumer awareness in the UK mobile market Oftel believes that the more important result is the proportion of consumers who could make savings given their individual preferences. This result is most sensitive to the assumptions made about switching costs. The shaded area in Table 4.1 presents what Oftel believes to be its best estimate of the level of available consumer savings in the UK mobile market.

4.23 Based on data for October 2001 Oftel estimates around 50 per cent of mobile customers could be considered as being on the cheapest tariff relative to their usage profile.

Table 4.1: Available savings in UK mobile market, showing effects of various assumptions

¹ Total savings based on estimate of 34 million adult mobile subscribers

4.24 Further analysis shows that a further eight per cent of mobile consumers can be considered as making a non-price choice in relation to their decision not to switch. This group includes both those consumers who consider non-price factors to be more important (three per cent) and those who would not switch for any saving (five per cent).

Figure 4.2: Summary results for UK mobile market

4.25 This suggests that any improved consumer price information is likely to benefit at most 42 per cent of all mobile customers. As outlined in Figure 2.1, however, there also exists a group of consumers who even though they consider price to be important and are not on the cheapest deal the costs they attach to switching are greater than the savings available. Notwithstanding the difficulties associated with measuring the actual savings consumers would require to switch, the research suggests that just over half of the remaining group would not switch for the available savings. The remaining 16 per cent of mobile customers (5.3 million) may be able to benefit from improved information.

Post-pay and pre-pay

4.26 Table 4.2 shows how these consumers are split between post-pay and pre-pay. Note that as described in paragraph 4.15 estimates of the proportion of post-pay customers who would switch to pre-pay have been derived from another survey. Technically it is possible to produce individual spend estimates for these customers by matching the two surveys but this is unlikely to add significantly to the precision of the estimates. It is likely, however, that the average spend estimates will be at least slightly different for the two groups of post-pay customers. The pre-pay estimate is unaffected. 

Table 4.2 Savings for pre-pay and post-pay subscribers

4.27 While the group of customers who could make savings is split fairly equally between pre-pay and post-pay subscribers, given the much larger proportion of pre-pay subscribers overall it is clear that that just around 10 per cent of all pre-pay customers could benefit from improved information. This seemingly low figure is not altogether surprising given the different characteristics of pre-pay such as low levels of use and a relatively limited set of tariffs to choose from. These factors coupled with the repeat nature of purchase and lack of contract tie in would seem to suggest a lower likelihood of pre-pay consumers paying large additional amounts for their service.

4.28 Those pre-pay customers who may be able to benefit from improved information spend, on average, just over £10 per month and could save, on average over £3 per month.

4.29 In contrast, around 40 per cent (2.6 million) post-pay customers may be able to benefit from improved information although the precise figure is difficult to quantify given the difficulties in calculating the additional quality premium customers are willing to pay for post-pay packages.

4.30 Through a process of model calculation and plausible reasoning, further outlined in Appendix A Oftel estimates that on average post-pay customers who are interested in making savings spend around £30 per month but could save on average around £9 a month. Taking into account remaining contract tie-in period and lag effects gives an estimated annual saving of £122m.

4.31 Together the savings available to pre-pay and post-pay customers amount to £235 million per annum which represents under five per cent of all revenues from adult mobile customers. In addition, it is important to recognise that the level of savings available to the remaining customers will still be affected by factors other than price, for example, preferences for post- or pre-pay packages.

4.32 In addition it appears that there is little evidence to point to the group who could possibly benefit from improved information being concentrated in a particular demographic profile. There is some evidence that men, those aged 45-64, and higher income households are more likely to be able to realise their required savings there is no real evidence that particularly vulnerable groups, such as lower income households, appear to be disproportionately affected by a lack of useful information.

Table 4.3 Profile of group who could make savings compared to profile of population

Fixed

4.33 In order to inform the consultation on general methodology Oftel commissioned a small-scale study in January 2003 to provide a preliminary estimate of the level of savings available in the fixed market. Oftel has commissioned a more detailed survey on the fixed market, the results of which will be used in conjunction with response to this consultation, to inform a statement on how Oftel will apply the methodology in the future.

4.34 It is important to note that many of the issues in the fixed market are rather more complex than in the mobile market which make it more difficult to model optimal price estimates. For example:

• Non-universal coverage of all providers (cable operators);
• Bundling of services (Internet, TV, broadband);
• Additional lines; and
• Indirect access: mix and match options for different call types and destinations.

4.35 Given the complexity of these issues and the limited scope of the preliminary survey it has not been possible to properly consider all of these factors and the results can be considered purely indicative at this stage.

4.36 To remove some of the uncertainty the analysis has focussed on calculating a level of savings for a subset of customers with relatively simple patterns of fixed telecoms usage. ie single line homes without Internet and (non-cable) pay-TV. The survey showed that this subset constitutes around 10.8 million homes, just under half (47 per cent) of all fixed households and the spend of this group represents around £3.1bn per year or around 40 per cent fixed telephony spend.

4.37 In addition, this group of households is likely to be disproportionately represented by lower income households who could be considered more ‘at risk’ from a lack of adequate consumer information. The analysis can also be considered more directly comparable to the mobile results, focussing solely on issues of fixed telephony access and calls being largely independent of bundled services (TV, Internet) effects. On average, these customers make relatively few calls and less than a quarter make international calls more than once a month.

4.38 The results should be considered subject to a greater degree of approximation than the mobile results due as quarterly spend estimates were collected in £10 bands only. In addition less detailed information was collected on usage and so the optimal spend estimates will also be more approximate. On the other hand, comparisons between market research and market information data suggest that consumers are better able to provide more accurate fixed spend information than, say, pre-pay mobile expenditure. More precise information is being collected in the current survey.

4.39 Finally due to the huge number of indirect access offers available these were not modelled individually. Instead, an estimated spend figure was calculated using by applying a percentage discount to BT’s standard tariff which was thought to be representative of the typical level of savings. These assumptions are outlined in Appendix B but a key point to note is that, generally, the subset of consumers considered make relatively few calls, particularly to international destinations, and the assumptions are not thought to have a material effect on the results.

4.40 In addition, as for the mobile analysis, the key result of the proportion of consumers who could make savings and would consider switching is generally independent of the assumptions.

4.41 In summary, notwithstanding the greater level of assumption the results appear to be broadly similar to those for mobile.

• Between 30-50 per cent of fixed households appear to be on the cheapest deal for their particular usage pattern;
• Of the remainder the majority could not realise their required level of savings leaving between 14-20 per cent who may benefit from improved information; and
• In total these households could save around £20 per quarter; this is equivalent to around £150m per annum or about five per cent of the spend of the analysis group (single line homes without Internet and (non-cable) pay-TV).

4.42 While the five per cent savings level is similar to the equivalent mobile figure it is worth noting that the subset of fixed telephony consumers studied here is rather less advanced in its telecoms use. It is possible that the greater level of telecoms use in the other half of the population may mean that there are greater savings available there.

4.43 On the other hand, a large proportion of the mobile savings figure can be explained by large differences in post-pay and pre-pay prices. With fixed telecoms a large proportion of every consumer’s bill is the access charge which is broadly similar for BT and cable and so the overall bill variation is rather less than for mobile.

4.44 On this basis the results seem plausible but it is important to reiterate that the results presented here are very much preliminary findings and there a number of factors which have not been considered.

4.45 This analysis does not attempt to measure the quality premium which fixed telecoms users place on their existing service. Nor does it attempt to quantify the monetary costs attached to switching such as connection charges. Similarly, the effects of contract tie-in periods and the lag effects of consumers not immediately switching to a cheaper tariff were not measured. Each of these factors will lower the actual level of savings available to fixed consumers.

4.46 The relatively small sample size also means that it is not possible to make any firm assessment of the demographic profile of the group who may be able to benefit from additional information. But, as shown in Table B1, Appendix B, the study group (‘basic’ telephone users) is more concentrated among older, lower income households.

4.47 The limited scope of the January survey means that Oftel was not able to provide a full assessment of these effects although these issues will be dealt with in the more detailed survey and discussed in the final statement on the methodology later in the year.

Questions

Do stakeholders have any practical suggestions for improving the precision of the optimal spend estimate?

Is the way Oftel has taken into account switching costs and quality/inertia premium reasonable?

Are the results of the application of the methodology a) plausible, b) in line with expectations?

Chapter 5

Interpretation and application

5.1 At a broad level the findings of both the mobile and fixed analyses could be interpreted as showing that consumers are relatively well informed. Around half of all consumers in both markets appear to be paying close to the cheapest available price.

5.2 While it is not possible to determine how many of these consumers were on the ‘correct’ tariff through well-informed choice and how many by chance it is straightforward to demonstrate that the probability 50 per cent of customers selecting the correct option by chance is negligibly small. For example, at the simplest level in the mobile market, a choice of four networks and a post and pre-pay option gives each customer a one in eight chance of selecting the correct tariff. This could be regarded as consistent with a reasonably high level of consumer information.

5.3 In addition, there is evidence that the majority of the remaining customers in both markets appear to be making a rational choice in their decision not to migrate to a cheaper package.

5.4 Furthermore, the results suggest that while the level of total savings available to those customers who could make savings is high in aggregate terms, it is small in terms of overall household expenditure. Indeed, this could be a factor in determining why the average ‘switching premium’ appears to be relatively high.

5.5 Also, as noted in paragraph 4.26 consumers will not immediately migrate to a cheaper offer as soon as one becomes available. There will always be some degree of lag. Similarly, price differences will be present in any competitive market and some of the apparent level of available savings will reflect quality differentials between networks or suppliers.

5.6 These conclusions might lead to a conclusion that there is little need for additional consumer information. But it is possible to take an alternative view.

5.7 First the available level of savings is high in monetary terms. For the mobile market the figure is £235m. The savings available in the segment of fixed market studied is similar as a proportion of overall revenues (five per cent) which might suggest a total level of savings of some £400m if grossed to the total population. This might suggest some level of excess operator profit and could lead to overall welfare loss if excessive pricing was restricting demand.

5.8 It is also possible that while the proportion of customers who appear to be suffering some level of detriment through inadequate information is relatively low, these customers share similar demographic characteristics. This would lead to more concern if such customers could be identified as a particularly ‘vulnerable’, for example, low-income group.

5.9 While this does not appear to be the case in the mobile analysis it is worth noting that any concentration of detriment among a particular group could facilitate a properly targeted approach to new information initiatives which could help deliver consumer benefits at a relatively small cost.

5.10 On a more technical level, it should be noted that the results presented in Chapter 4 were based on consumers switching to the cheapest deal available on any network. But it is possible that some consumers may be able to make some level of savings, if not the full amount, by remaining with their existing supplier. This is of interest as one possible regulatory solution to reducing the level of overall expenditure would be to ensure that suppliers took steps to ensure that all of their customers were on the cheapest available tariff.

5.11 The full extent of the level of savings which consumers could make without switching supplier is difficult to measure. For example, in the mobile market, most low use customers on post-pay packages could make significant savings by switching to pre-pay but some consumers may still prefer the convenience of post-pay even if the savings are pointed out to them. And there is no incentive for suppliers to move customers from post- to pre- pay as they lose the advantage of customer tie-in. Consequently it is likely that suppliers could not offer existing pre-pay tariffs to existing post-pay customers without some attempt to recoup the handset subsidy generally given with post-pay packages.

5.12 In any case it is difficult to recommend any ‘supplier optimisation’ on the result of a snapshot survey. Suppliers will require a longer time period over which to assess the precise nature of a customer’s calling pattern before they can decide on a more appropriate tariff. Indeed, to properly validate the methodology and the results it will be necessary to carry out some assessment of additional expenditure over time.

5.13 A related point is that some additional expenditure may arise where changes to consumers’ typical usage patterns result in unexpectedly high bills. Improved consumer information could be used to minimise this risk, although it is less clear how the total level of additional expenditure arising from such events can be measured without continuous monitoring.

Establishing a benchmark

5.14 On balance Oftel believes that the results from the fixed and mobile analyses show that, generally, there is a substantial level of consumer understanding in relation to tariffs. While there may be pockets of consumers who are less aware, the overall level of awareness does not appear to be at a sufficiently low level to materially affect the behaviour of a majority of customers. This conclusion, however, can only be considered tentative until recognised benchmarks from other industries become available.

5.15 In addition it is likely that a traditional cost-benefit analysis which considers the costs to Oftel and/or suppliers of improved information initiatives against the reduction in savings made by consumers as a result is always likely to demonstrate the need for additional action. But this approach has a number of flaws.

5.16 First, it can be argued that a proper regulatory cost-benefit analysis should consider overall welfare loss rather than pure consumer detriment. This is important when prioritising regulatory objectives.

5.17 Second, it is rather harder to target information initiatives effectively to deliver all of the identified benefits. It is probable that some law of diminishing returns applies in the case of consumer information ie not all savings will be realised immediately and that progressively greater targeting initiatives will be required to ensure that all additional expenditure is removed. The level of consumer awareness in any market is also likely to increase naturally in any case. So a portion of the apparent benefit cannot be attributed directly to any regulatory intervention.

5.18 Consider, for example, a more direct regulatory intervention such as a price cap. While it is probable that the regulatory resource required to determine the appropriate level of a cap is likely to be higher than developing a consumer information campaign, the actual costs in both cases are likely to be significantly lower than the benefits. Yet as noted in the previous paragraph, the ability of a consumer information campaign to deliver all of the required benefits is limited. This effect is illustrated in the following diagram.

Figure 5.1 Comparative effects of price cap regulation and consumer information initiatives

5.19 Given that Oftel does not have - and Ofcom will not have - unlimited resource, what is required is a formal mechanism to allow it to properly set priorities and better focus regulation. Oftel proposes that the methodology outlined in this document is an appropriate tool to assist it in meeting this goal.

5.20 Although the main use of this methodology is likely to be in helping to better target future regulation Oftel is also keen to explore the extent to which the methodology can be used as an indicator of competition. For example, given suitable benchmarks, a ‘low’ level of additional expenditure may be indicative of a high level of consumer information which in turn could be taken to be evidence of effective competition.

5.21 How far the methodology can actually be used in this context does, however, appear limited given the preliminary results presented in Chapter 4. Estimates of additional expenditure and the proportion of customers on the correct tariff from the fixed and mobile are broadly similar yet the extent of competition is markedly different.

5.22 In summary, the issues raised here are extremely complex and interpretation is further impeded by the absence of suitable comparators from other industries. It is probable that additional expenditure occurs in other industries – both regulated and otherwise. In order to ensure that any additional intervention on the basis of an identified level of available consumer savings remains proportionate Oftel will monitor research in other industries.

5.23 In the meantime Oftel is clear that the methodology outlined here does have a role in helping its understanding of consumer behaviour and allowing it to better dimension the scale of any problems in the consumer information field. It is important to identify if consumers are in fact losing out or, conversely, to what extent they are making well informed choices based on factors other than price. This work will also have a key role in allowing Oftel to better target future resource in its consumer information area.

5.24 There are also clear links with the methodology and the principles outlined in Oftel’s consumer protection policy review guidelines, and more generally, in the regulatory option appraisal process.

5.25 Oftel proposes that the future application of this methodology is primarily in determining the need for improved information in markets where there is already a degree of competition. It is likely that the benefits of information in such markets are likely to be less than for markets where competition is not yet effective. But it is also possible to use the methodology to target groups of consumers who are, for whatever reason, not benefiting fully from competition. In summary, therefore, Oftel believes that the methodology will be an important tool in prioritising future regulatory action. 

Figure 5.2: Possible application

Questions

Do stakeholders agree with Oftel’s assessment that the general level of savings available in fixed and mobile markets does not give cause for concern?

Do stakeholders agree that the methodology proposed will be best used in improving the targeting of future information initiatives?

Are there other markets in which stakeholders believe Oftel should attempt to measure the level of savings available? Do stakeholders foresee any practical difficulties in doing so?

Can stakeholders provide any suitable benchmarks from other industries which can assist Oftel in determining whether the level of consumer detriment in telecoms markets is sufficiently high to justify regulatory intervention?

Do stakeholders believe that the level of additional expenditure in any market can be used as an indicator of effective competition?

Chapter 6

Consultation

How and when to comment

6.1 Oftel invites comments from interested parties on the contents of this consultation document by 30 June 2003. Oftel is interested in responses from all stakeholders on the subject areas discussed in this document. Oftel is particularly keen to learn of any similar research in other industries which will assist it in developing a suitable benchmark for telecoms service. Oftel would also welcome any additional data which suppliers or others may be able to supply which would enable it to better quantify the level of savings available to consumers.

6.2 Comments on the proposals should be made in writing or in electronic form and sent to:

Kenny Osborne

Oftel
50 Ludgate Hill
London
EC4M 7JJ

Tel: 020 7634 8973
Fax: 020 7634 8757

e-mail: kenny.osborne@oftel.gov.uk

Publication and viewing of responses

6.3 On this occasion, Oftel is not programming a formal period during which interested parties may comment on the responses made by others. Nevertheless, in the interests of transparency, comments will be published on Oftel’s website and made available in its Research and Information Unit, except where respondents indicate that a response, or part of it, is confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly identified as containing confidential material. Oftel will take steps to protect the confidentiality of all such material from the moment that it is received at Oftel’s offices. However, in the interests of transparency, respondents should avoid applying confidential markings wherever possible. Appointments to view written comments in Oftel’s Research and Information Unit must be made in advance by telephoning 020 7634 8761 (fax: 020 7634 8946). If respondents would like to discuss the contents of this consultation document, please contact Kenny Osborne on 020 7634 8973. 

Alternative formats

6.4 Copies of this consultation document are available on disk. Accessible formats such as large print, Braille and audio cassette can be made available on request.

6.5 Please contact the Oftel Research and Information Unit on 020 7634 8761 or by e-mail at infocent@oftel.gov.uk for more information.

6.6 This document is available on Oftel’s website at www.oftel.gov.uk. Hard copies are also available from Oftel’s Research and Information Unit.

Internet notification

6.7 Oftel has a free e–mail based mailing list to help people stay informed about the work that Oftel is doing. Each time an Oftel document is published and placed on Oftel’s website at www.oftel.gov.uk, subscribers to the list receive an e–mail informing them about the document. To register, please go to the What’s New section of the website and link to the electronic form.

Next steps

6.8 Following the end of this consultation Oftel will publish a statement of its conclusions which will outline how Oftel will use a measure of available consumer savings to assess its future action in the consumer information field. This statement will take into account views expressed by respondents as well as the results of parallel research being conducted by Oftel during the consultation period.

The consultation criteria

6.9 Oftel considers that this document meets the Cabinet Office code of practice on written consultation documents. The code is reproduced below for convenience. If you have any comments or complaints about this consultation process please contact:

Oftel Co–ordinator for the code of practice:
Rob Jex,

Oftel,
50 Ludgate Hill,
London
EC4M 7JJ

tel: 020 7634 5350
fax: 020 7634 8943

e-mail: rob.jex@oftel.gov.uk

1) Timing of consultation should be built into the planning process for a policy (including legislation) or service from the start, so that it has the best prospect of improving the proposals concerned, and so that sufficient time is left for it at each stage.

2) It should be clear who is being consulted, about what questions, in what timescale and for what purpose.

3) A consultation document should be as simple and concise as possible. It should include a summary, in two main pages at most, of the main questions it seeks views on. It should make it as easy as possible for readers to respond, make contact or complain.

4) Documents should be made widely available, with the fullest use of electronic means (though not to the exclusion of others), and effectively drawn to the attention of all interested groups and individuals.

5) Sufficient time should be allowed for considered responses from all groups with an interest. Twelve weeks should be the standard minimum period for consultation.

6) Responses should be carefully and open-mindedly analysed, and the results made widely available, with an account of the views expressed, and reasons for decisions finally taken.

7) Departments should monitor and evaluate consultations, designating a consultation co-ordinator who will ensure that all the lessons are disseminated.

Appendix A

Detailed methodology for assessing savings in the UK consumer mobile market

A1 As outlined in the main paper the general principle of the methodology has been to measure the level of excess expenditure in the UK mobile market by comparing actual expenditure levels of individual consumers with the minimum prices available for their given usage pattern.

A2 In October 2001 Oftel conducted a detailed study asking 3000 consumers (representative of the UK mobile population aged 16+) a wide range of questions about their mobile usage, spend patterns and factors which influence their buying decision. This information was used in a number of ways.

Calculating optimal spend estimates

A3 The usage data were used initially to update the range of user profiles which form the basis for Oftel’s UK mobile price monitoring work. In all there are 21 profiles which are considered to be broadly representative of ‘typical’ mobile customer calling patterns.

A4 A subset of these profiles are also used in Oftel’s international benchmarking work which compares the prices for UK consumers with those available in major competitor economies. Both the UK monitoring and international comparison work apply the vast majority of tariffs available from each of the four UK network operators (and Virgin) to the selected user profiles to calculate the cheapest available tariff for each customer type.

A5 In theory it is possible to provide an estimate of the total level of excess expenditure in the UK mobile market by estimating the proportion of customers in each profile and using this information, together with the derived optimal price, to construct an estimate of ‘total minimum spend’. This figure can then be compared with the actual total spend to derive a figure of total available savings.

A6 But as the outline methodology in Chapter 2 shows it is necessary to consider individual attitudes to switching in relation to specific spend and available savings levels. In addition, while the summary profiles are useful to monitor overall price trends, small variations in individual usage patterns even within profiles mean that optimal spend levels are not sufficiently accurate at the detailed level. To provide greater accuracy it is necessary to estimate optimal spend levels for each individual survey respondent and compare actual spend levels on that basis.

A7 Even so, any survey approach to estimating consumer usage patterns is subject to some degree of error. While the survey questionnaire (see Appendix C) asked a large number of questions designed to provide greater precision to the usage and derived optimal spend estimates it was still necessary to include some level of assumption in the final analysis.

A8 In addition, there will also be some degree of error attached to consumer estimates of actual spend and again it was necessary to make some assumptions. The assumptions on consumer usage and spend levels are outlined here.

A9 Together these assumptions mean that there remains some uncertainty as to the precise level of consumer savings available. To test the precise effects of the assumptions this Appendix also presents a range of sensitivity analyses designed to assist in determining the level of confidence which can be attached to the initial conclusions presented in the main document.

Assessing the accuracy of survey estimates

A10 Oftel regularly collects information from mobile network operators on aggregate consumer spend and usage levels. From these it is possible to derive estimates of usage and spend for an average consumer which can be used to assess the overall accuracy of the consumer survey estimates.

A11 Unfortunately, aggregate information supplied by mobile operators does not distinguish between residential and business consumers. Consequently overall average spend and usage levels are likely to be significantly above average residential levels.

A12 Nevertheless it is possible to make some assessment of the accuracy of the survey estimates with reference to separate figures for pre-pay supplied by the operators. The vast majority of pre-pay consumers will be residential customers. Consequently the operator figures are likely to provide a good test of the survey accuracy.

A13 Table A1 shows that both usage and spend levels reported by operators are significantly below those reported by the specific survey used to construct the analysis described here. Figure A1 also shows that Oftel’s regular market research spend estimates are also consistently higher than the operator estimates.

A14 In any survey it is possible that average results can be significantly affected through the inclusion of outliers – irregular observations which while few in number – are significantly different (high or low) to materially affect the results. Table 1 shows how average usage and spend levels in the October 2001 survey are affected through the exclusion of up to three per cent of observations. Oftel is well aware of the limitations of a survey methodology but is keen to establish exactly how more accurate usage and spend information can be obtained other than through direct access to billing information. 

Table A1: Comparison of operator and consumer survey estimates of pre-pay usage and spend, October 2001

A15 Further analyses are based on exclusion of all customers who claimed to spend more than £100 per month and pre-pay customers who claimed to use more than 600 minutes per month, in both cases this represents an exclusion of just under one per cent of observations.

A16 As Table A1, above shows this does still leave some discrepancy between average usage and spend levels. Intuitively, it is not altogether surprising that pre-pay customers appear unable to measure precisely their monthly usage and spend levels given the lack of a monthly bill and varying regularity of voucher purchase. At a simple level, for example, consider a customer who purchases a £10 pre-paid card every six weeks but for the purposes of the survey claims a monthly spend based on his/her last purchase of £10. In this case average monthly spend is over-stated by 50 per cent. Similarly this customer may also think on the basis of a certain monetary amount being equivalent to a given volume of calls.

A17 Figure A1 also shows that there by considering customers actual voucher spend and the regularity of purchase spend estimates can be brought closer to operator figures although there remains some discrepancy. This information was thus used as the best estimate of pre-pay spend.

A18 It is not possible to make a similar adjustment to usage levels as no measure of ‘voucher volume’ is available. In addition, SMS volumes must also be considered in constructing usage estimates and it is more difficult to construct an assessment of the accuracy of SMS volumes, primarily because pre-pay SMS data are not collected separately from operator figures submitted to Oftel.

A19 Second, SMS volume information was collected by asking consumers to estimate the total number of messages sent per week by assigning their usage to the following bands: none, 1-4, 5-10, 11-20, 21-50, 50+. Average monthly SMS use was estimated by multiplying the mid-point (75 for 50+) of these figures by four. This delivered an average for all subscribers of 120 messages a month.

A20 This compares to an overall average figure of 78 from the market information for the same period. Given that both spend and call volume levels appeared to be over-estimated it seems reasonable to assume that there is also a degree of over-statement in the volume of SMS usage. In the absence of alternative information the estimates of monthly SMS usage were reduced by one third (see note one below).

Figure A1: Comparison of operator and consumer survey estimates of pre-pay monthly spend

A21 This information was then used in conjunction with call volume and spend information to construct minimum and maximum spend estimates to ensure that the final spend levels used in the analysis were consistent with usage information. Maximum spend estimates for each customer were constructed by applying maximum pence per minute rates for the individual consumers existing tariff plan to the call type profile provided. This method was preferred to calculating maximum spend estimates from the price model as there are a number of very expensive tariffs which are suitable only for very high users which it is reasonable to assume would not be considered by most customers.

A22 Minimum spend estimates were constructed using the price model. However, in a number of cases actual spend estimates were found to be below those generated by the price model. This was not unexpected. For example, many consumers may benefit from temporary discount schemes which are not considered in the model. Similarly, the remaining approximation in the model means that it is feasible that some consumers will be spending below the figure suggested by the price model. It is also true that these consumers are low spend customers in any case who are at least more likely to be unable to realise their required savings.

A23 The results presented in Chapter 4 are based on the exclusion of customers whose spend estimates were more than 10 per cent lower than suggested by their user profile. Those respondents who were less than 10 per cent below the minimum spend estimate were assumed to be on the correct tariff for their particular usage pattern.

A24 Following these adjustments, the average pre-pay spend of adult UK customers was estimated to be £8.98 per month compared to the operator estimate of £8.23 per month. The remaining difference will, in part, be due to the focus on residential adult consumers rather than all pre-pay customers which will include children (see below) and some business users. No further adjustment was thus made to pre-pay spend.

A25 As noted in paragraph A11, it was not possible to make an assessment of the accuracy of the spend information supplied by post-pay customers. Although it seems reasonable to assume that because these customers receive a monthly bill that their spend estimates will be more accurate. Nevertheless, responses where spend estimates were outside the range of plausible alternatives implied by the usage information were excluded from the analysis in the same way as for pre-pay customers (see paragraphs A21 to A23).

A26 Finally, when the survey was carried out around ten per cent of customers subscribed to so-called all-in-one packages which involved an up-front payment with the purchase of the handset for an entitlement to a set volume of calls. These types of package are not modelled in the price monitoring work and have now largely been discontinued. For the purposes of this exercise prices for these customers were modelled using pre-pay prices. The relatively small proportion of customers on these packages, however, meant that this assumption had a negligible effect on the overall results.

Switching costs

A27 It is also possible to add an additional price element to the optimal tariff to reflect switching costs. While in some cases these could be zero there is at least likely to be a cost incurred through SIM unlocking (the process through which an existing phone becomes useable on another network) or at most through the need to purchase a new handset.

A28 Where a new handset is required the appropriate methodology would be to amortise the price of a new handset over the expected life of a handset. For example, given an average handset price of around £100 and an expected life of two years this would have the effect of raising the optimal monthly spend for pre-pay packages by almost £5 per month.

A29 Such a value is extremely high in relation to the average pre-pay spend and if included in the analysis would result in an extremely high proportion of pre-pay customers being assumed to be on the correct tariff. But it is likely that there will be some costs attached to switching to a new network in most cases. Instead it was assumed that where a customer could switch to a cheaper pre-pay package by moving network that he/she would only do so if the savings were at least £1 a month relative to the existing package. This is thought to reasonably reflect the average cost of SIM unlocking amortised over the duration of a tariff.

A30 But the issues surrounding handset costs are more complex. In many cases a consumer’s original purchase decision will be made on the basis of the features available on the handset. This should be reflected in the final assessment.

A31 In general this issue is relevant primarily for post-pay customers as the choice of pre-pay handset is more limited and pre-pay customers are more concerned about price than other quality features. The approach taken has thus been to assess the level of post-pay premium which will in part reflect greater handset functionality.

A32 To assist in the calculation of an appropriate level for this premium Oftel conducted some additional research in October 2002 which asked post-pay consumers whether they would switch to a cheaper pre-pay package if they could retain all other aspects of their existing package. A third of respondents claimed they would not. Oftel has thus applied this proportion to the main results and used the cheapest post-pay tariff as a more suitable benchmark than the cheapest overall tariff.

A33 It is more difficult to measure the premium attached to post-pay for those consumers who claim they would switch. The approach taken has been to assume that the difference in post-pay and pre-pay tariffs for these consumers is accounted for by the additional costs which would have been incurred on a pre-pay package due to the purchase of a handset. This figure is estimated to be £5.94 per month based on an average handset price of £107 and an average duration of 18 months. These figures are consistent with those used in Oftel’s benchmarking work.

Contract tie-in periods and lag effects

A34 The final assumptions consider the effects of contract tie-in periods and the lag effects of consumers not migrating to a cheaper package as soon as one becomes available.

A35 In terms of contract tie-in it has been assumed that on average customers have six months remaining on existing 12 month contracts. Consequently the savings available for these consumers in any given year should be reduced by half. This issue is assumed not to be relevant for pre-pay although in practice it is unrealistic to expect consumers to change packages every time a cheaper one becomes available.

A36 Indeed generally it is not realistic to expect consumers to move immediately. And it is appropriate to introduce a minimum lag period. The main results have assumed that on average it takes consumers three months to switch to a cheaper package with full information although results are also presented for shorter lag periods.

A37 Tables A3a and A3b below shows the results of some sensitivity analyses additional to those presented in Chapter 4. These show the effects of a) excluding handset costs; b) different average contract lengths; and c) different switching lags.

On-net calls

A38 All of the optimal spend levels are calculated on current usage patterns. This means in particular that there is an implicit assumption that the proportion of on-net calls will remain constant when a user switches network. This seems unlikely unless all those people who he currently calls on the existing network also switch. Given that on-net calls remain cheaper than off-net calls it could be again that the estimates of available savings are too high.

Excluded calls

A39 The results exclude international roaming tariffs and expenditure. The consumer survey did not ask a sufficient level of detail about roaming call patterns to properly inform the modelling. Oftel already recognises that the high levels and transparency of international roaming tariffs are areas for concern. But it should also be remembered, that a relatively small proportion of consumers use their phone abroad, many of these only infrequently and the exclusion of these tariffs are not thought to significantly affect the conclusions here.

A40 It is possible, however, that there will be trade-offs in the level of expenditure for calls made in the UK and calls made abroad i.e. a consumer may choose relatively highly priced overall package in order to make savings on roaming charges.

A41 Finally, it is also worth noting that the usage patterns described by users may not necessarily reflect their desired behaviour ie that they have adapted their usage to reflect the tariff structure. 

Table A3a: Estimated proportion of customers who could make savings and total annual savings excluding handset costs

Table A3b: Estimated proportion of customers who could make savings and total annual savings including handset costs (amortised over 18 months)

¹ Oftel best estimate

Savings within networks

A42 The figure of £235 million represents Oftel’s best estimate of the total available savings for the relevant group of mobile consumers and is based on consumers moving to the cheapest available tariff on any network. But it is possible that some consumers may be able to make some level of savings, if not the full amount, by remaining with their existing supplier. This is of interest as one possible regulatory solution to reducing the level of overall expenditure would be to ensure that suppliers took steps to ensure that all of their customers were on the cheapest available tariff.

A43 The full extent of the available savings within network is difficult to measure. For example, as noted in the main text, most low use customers on post-pay packages could make significant savings by switching to pre-pay. However there is no incentive for suppliers to move customers from post - to pre - pay as they lose the advantage of customer tie-in. Consequently it is likely that suppliers could not offer existing pre-pay tariffs to existing post-pay customers without some attempt to recoup the handset subsidy generally given with post-pay packages.

A44 In any case it is difficult to recommend any ‘supplier optimisation’ on the result of a snapshot survey. Suppliers will require a longer time period over which to assess the precise nature of a customers calling pattern before they can decide on a more appropriate tariff.

A45 Nevertheless it is useful to estimate to provide an estimate of the level of savings which may be available within networks. Table A3 below provides an estimate of the savings available within their existing network for those consumers interested in making savings around £84m per year. The table assumes that where a post-paid subscriber moves to a pre-pay package that the handset cost is recovered over one year and that it takes an operator at least 6 months to determine a subscriber’s regular calling pattern. The apparently low level of these figures appear to suggest that some level of supplier optimisation is already occurring. Indeed most operators do offer such a scheme.

Table A3 Estimated savings within network

Mobile users under the age of 16

A46 The results consider only adult mobile subscribers. A simultaneous survey was carried out among mobile customers under the age of 16 but was less detailed and it was not possible to replicate the methodology accurately.

A47 However it is worth noting the following results from the survey. Unadjusted figures show that on average young mobile customers spend around 80 per cent of the adult spend. They make, on average, around 60 per cent of the adult level of calls but send around 60 per cent more text messages per month.

A48 These figures suggest that the average optimal spend level is likely to be just slightly lower than the optimal spend level for adult consumers. Consequently, overall there appears little additional expenditure among young consumers.

A49 This result is not altogether surprising. Usage figures suggest that, assuming a charge per message of around 10p, text messaging may account for almost two-thirds of young mobile consumer expenditure. These figures also suggest a low pence per minute call expenditure, consistent with the survey response that the proportion of on-net calls is larger than for adult consumers. So young consumers are taking steps to minimise their expenditure levels.

A50 The survey also shows that 94 per cent of young mobile consumers have a pre-pay package, the cheapest type of package for the majority of users although to some extent this may reflect the non-availability of contract packages to young consumers. There is also little difference in the prices for text messaging across different networks so the effects of choosing the ‘wrong’ network will be lower than for adult consumers. Thus, there is strong evidence to suggest that young mobile consumers are generally well-informed.

A51 In addition over half of the children surveyed indicated that their mobile bill was paid by their parents, which suggests that the additional benefits of improving the information available to young mobile customers may be limited in any case.

Summary

A52 In summary it is important to note that the results of this analysis cannot be considered precise but rather indicative of a ‘best-guess’ of the level of potential savings for consumers in the UK mobile market at the end of 2001. It is possible that the level has further declined since the survey was undertaken. Nevertheless the methodology is a useful mechanism for comparing the levels of savings available to different types of consumers and where the benefits of additional regulatory intervention are most likely to be realised.

Notes:

1. Note that overall pre-pay market information spend estimates were constructed by applying the ratio of pre-pay and monthly contract SMS use per subscriber from the survey to the actual total level of use per subscriber from operator returns

    Appendix B

Methodology for preliminary assessment of savings in the UK residential fixed telecoms market

B1 To help assess the applicability of the methodology developed in the mobile market prior to consultation Oftel carried out a small scale study in the fixed market in January 2003. The study was based on a sample of 1000 fixed telecoms households, representative of the GB population of adults aged 18 and over. Results from a further study which will replicate the mobile methodology in full will be available in the summer.

Issues to consider

B2 There are a number of additional factors which make it more difficult to calculate optimal spend estimates for fixed telecoms consumers. First, while each mobile network provides close to universal coverage, not all fixed access providers do so. Direct access via the cable operators - ntl and Telewest – is only available to around 60 per cent of the population and their individual franchise areas are unique. Similarly, Kingston Communications is the only access provider in the Hull area.

B3 Second, simple fixed telephony can be bundled with other communications services such as Internet (narrowband or broadband) or digital, cable or satellite television. It is thus more difficult to compare prices for fixed telephony. For example, a cable operator may offer a ‘free’ telephone line in return for a subscription to its pay television service.

B4 A related point is that a large number of households have more than one telephone line, many devoted to Internet access. In which case it becomes appropriate to compare prices for two simple telephone access lines with the price of a single ISDN, DSL or cable modem connection which allows simultaneous voice calls and Internet access.

B5 Third, there are a huge number of indirect access offers available. In some cases the cheapest available deal will be available by using a different indirect access provider for each individual call type and destination. Analysis is further complicated by the availability of ‘free’ calls which are bundled with rental charges by access providers.

B6 The scope of the January survey was not wide enough to properly reflect all of these issues and to provide a suitably comprehensive assessment of how consumers trade-off each of these aspects with price.

B7 Nevertheless, in order to provide some assessment of the level of savings available in the fixed telecoms market analysis to date has focussed on a subset of the survey sample with relatively simple patterns of fixed telecoms usage i.e. single line households with no Internet access. In addition, non-cable households with pay-television services were also excluded from the analysis. This simplifies the analysis by reducing the need to provide an assessment of the relative price trade-offs for additional bundled services.

B8 The study group still makes up a significant proportion of the market – around 47 per cent of households and around 40 per cent of total residential fixed telecoms revenues.

B9 Table B1 shows how the make-up of this group of households (‘basic’ fixed telecoms households) compares to the remainder (‘advanced’ fixed telecoms households) and the population as a whole. Generally the basic group is disproportionately represented by lower income and older households who may be considered more ‘vulnerable’ consumers.

Table B1: Age and social grade of ‘basic’ and ‘advanced’ fixed telecoms households

B10 Table B2 shows how fixed telecoms usage and spend among the basic user group is lower than among the advanced group. The usage figures relate to the number of calls and not call duration. Consequently the difference in total call volumes may be larger, particularly if longer duration Internet calls, were to be considered. Note that the average spend estimate of £81 can be considered more precise that survey estimates of pre-pay mobile spend given that equivalent operator data suggest average quarterly spend of £79 per quarter.

B11 Note also that the number of international calls made by both groups is very small. This has important implications in determining the likely take-up of cheap international call rates available via indirect access operators. 

Table B2: Fixed telecoms usage in ‘basic’ and ‘advanced’ fixed telecoms households

Calculating optimal spend estimates

B12 Despite the simplification of the analysis resulting from the restriction to basic telecoms users only the result must still be considered subject to a greater degree of approximation than the mobile results for a number of reasons.

B13 First, quarterly spend estimates were collected in £10 bands only. Consequently the margin of error associated actual spend and savings relative to the optimal tariff is likely to be at least £5 for each individual.

B14 Second, as stated in paragraph B9 above, information was collected only on the number of calls. Consequently it was necessary to make some assumptions about the average duration of calls to calculate optimal spend estimates. The assumptions used reflect the call durations used in Oftel’s international benchmarking work. These are shown in Table B3 below.

Table B3: Estimated average call durations (minutes) by call type

B15 Third, due to the approximate nature of the usage data it was not thought worthwhile to model every available tariff. Instead a number were chosen which were thought to be representative of the population of interest. For BT, the packages chose were Standard, Call and Save, Low User Scheme and BT Together. Where relevant these were also modelled incorporating a Friends & Family Discount. For ntl and Telewest the basic 3-2-1 package was considered.

B16 Finally, due to the huge number of indirect access offers available these were not modelled individually. Instead, an estimated spend figure was calculated by applying a percentage discount to BT’s standard tariff which was thought to be representative of the typical level of savings. The assumed discounts are set out in Table B4, below.

Table B4: Assumed level of discount available via typical indirect access provider relative to BT Standard tariff

B17 In addition to usage and spend estimates respondents were also asked how much of their quarterly spend they would have to save in order for them to switch. This information was also collected in the form of monetary bands (in £5 steps). The lower bounds were used to determine the relevant switching threshold. This may result in an overstatement of consumers’ willingness to switch although given the approximate nature of the expenditure estimates it is not clear whether this overstatement has a significant bearing on the results.

B18 As for the mobile analysis, some data cleaning took place to remove those observations where the usage data supplied did not appear consistent with the spend information. Observations were removed if spend estimates were significantly below the cheapest price modelled via the usage information or significantly above the most expensive. For spend estimates below £50 the allowable range was £5 above or below, for spend estimates between £50 and £100, the allowable range was £10 and for spend estimates above £100 the allowable range £20.

B19 This cleaning removed approximately 25 per cent of observations from the analysis set, a reduction in sample size which is far from ideal. For the main study Oftel is likely to use spend estimates as the basis for its calculations given that these estimates appear almost identical to operator figures. This may require some systematic adjustment to usage estimates which are likely to be less precise.

B20 For those observations which remained in the analysis set but where the spend estimate was outside the modelled price range the estimate was adjusted to reflect the modelled price for the respondent’s current tariff. In this way it was possible to calculate an estimated savings figure.

Sensitivity analysis

B21 Inevitably this level of approximation means that there is some considerable uncertainty regarding the estimate of the proportion of customers on the cheapest tariff. It does not seem sensible to use the precise calculated optimal price levels and spend estimates. Instead, Table B5 shows how the headline results are affected if different assumptions are made about the proximity of the customers current spend to the optimal tariff.

B22 For example, one assumption might be that if a customer’s spend estimate is within five per cent of the modelled optimal tariff then we cannot say for certain that they are not already on the cheapest tariff relative to their usage profile. In which case this would suggest that as many as 31 per cent of customers are already on the cheapest deal. This figure rises to 50 per cent if we increase the ‘proximity assumption’ to 15 per cent. This is not unreasonable given the margin of uncertainty and the fact that this represents just £10 a quarter on the average quarterly bill of the analysis group.

B23 More importantly, the key result – the proportion of customers who may be able to benefit from improved information - is less dependent on the level of assumption and appears to be between 14 and 19 per cent. Similarly the average level of savings available to these customers seems to be around £20 per quarter giving a total savings figure of between £130m to £160m per annum. This represents an estimated four to five per cent of the total expenditure of the analysis group.

B24 Note that the fixed questionnaire did not determine precisely the extent to which consumers valued factors other than price to be important when selecting a fixed telecoms supplier. In particular no consideration was given to the value-added features such as voice-mail services, free second line, which may be included in a suppliers basic package. Nor were direct-debit discounts or telephone rental charges considered. It is possible, therefore, that the proportion of consumers who would consider switching is lower than suggested in the table.

Table B5: Available savings to ‘basic’ fixed telecoms households, showing effects of various assumptions

B25 Finally, the number of observations in the group who may be able to benefit from improved information was too small to provide any reliable demographic information. Although, as shown in Table B1, the study group itself is more concentrated among older, lower income households.

Switching costs, contract tie-in and lag effects

B26 The above analysis does not consider the monetary costs attached to switching. In some cases, for example in choosing an indirect access provider to carry some calls, there may be no charge. On the other hand a direct operator is likely to charge a connection fee which can be significant. Similarly, the effects of contract tie-in periods and the lag effects of consumers not immediately switching to a cheaper tariff were not considered.

B27 Each of these factors will lower the actual level of savings available to fixed consumers. The limited scope of the January survey mean that Oftel was not able to provide a full assessment of these effects although these issues will be considered in the more detailed survey and discussed in the final statement on the methodology later in the year.

Summary

B28 In summary, the methodology developed for the mobile market, does appear to be applicable to the fixed market but it is too early to draw any firm conclusions regarding the level of savings available to UK fixed telecoms consumers.

Appendix C

Summary of questionnaire used in mobile survey, October 2001

Section 1: The mobile phone you currently use

Base: All
Q1. How many mobile phones in total do you and members of your household currently use?

Base: All
Q2. How many mobile phones do you personally use?

All following questions relate to mobile most often used

Base: All
Q3. Which network is it on?

Base: All
Q4. What type of mobile package is it?

Pre-paid package and vouchers? (i.e. after paying a one-off fee for the phone, ‘top up’ is bought as and when required).
Monthly subscription contract? (i.e. line rental and call charges are paid each month)
All in one package? (i.e. phone and any line rental is paid in advance and may include '‘free minutes’. Any additional calls are either billed monthly or paid by call vouchers)

Base: Those using Pre-paid package and vouchers
Q5. What is the name of the pre-paid package?

Base: Those using monthly subscription contract
Q6. What is the name of the monthly contract?

Base: All
Q7. How long have you had a mobile phone?

Base: All
Q8. How long have you been on the current package?

Base: All
Q9. Have you ever changed any of the following?

Service provider or mobile network
Mobile package
Mobile tariff

Base: All who have switched network, package or tariff
Q10. What were the reasons for changing the tariff/package/provider?

Base: All who have never switched network, package or tariff
Q11. Why have you never changed to a different tariff/ package/provider?

Base: All
Q12. Please think about what savings might encourage you to change your service provider, mobile package, or tariff in the future. What per cent saving might encourage you to change?

Section 2: The cost of using your mobile

Base: All
Q13. In the last month, what was the total amount spent on this mobile? By this we mean spent on calls, any rental, services, VAT etc

Base: All
Q14. Would you say this is typical of the amount spent on this mobile every month?

Base: All whose spend in the last month was not typical
Q15. If no, how much would you say is the typical amount?

Base: Those using Pre-paid package and vouchers
Q16. How often are vouchers/ credit purchased for the phone?

Base: Those using Pre-paid package and vouchers
Q17. What value of voucher/ credit is normally bought?

Base: Those using monthly subscription contract or all in one up front payment
Q18. Does the contract arrangement include ‘free minutes’ or ‘free call time’?

Base: Those using monthly subscription contract or all in one up front payment
Q19. How many free minutes are there per month?

Base: Those using monthly subscription contract or all in one up front payment
Q20. What payment method is used for paying the monthly bill (whether paid by yourself or someone else)?

Base: All
Q21. Who is mainly responsible for paying the monthly bill for the mobile phone? 

Section 3: Your mobile phone usage

Base: All
Q22. Please write in the total number of minutes (including free ones) that were used on the mobile phone in the last month.

Base: All
Q23. Would you say this amount is typical of the number of minutes used each month on this mobile?

Base: All whose total number of minutes used in the last month was not typical
Q24. If no, how much would you say is the typical amount?

Base: All
Q25. Please indicate what per cent of your mobile phone calls are usually made…

(Please make sure the total adds up to 100 percent.)

• During the day (before 7pm)
• Evening (after 7pm)
• Weekends

Base: All
Q26. What type of calls do you make on your mobile phone? Please indicate the percentages (per cent) making sure the total adds up to 100 per cent

• Calls to land lines in the UK
• To other mobiles (not including text messages)
• Calls dialled internationally from the UK

Base: Those who make calls to other mobiles
Q27. What per cent of calls do you make to other mobiles on the same network as you, and what per cent are to a different network? Please make sure total adds to 100 per cent.

• Same network
• Different network

Base: All
Q28. Approximately how many text messages do you send each week?

Base: All
Q29. How frequently do you use the mobile for accessing information/data services (e.g. Weather, traffic, news, sport)?

Frequently
Occasionally
Rarely
Never

Base: All
Q30. How frequently do you use the mobile for making/receiving calls when abroad?

Frequently
Occasionally
Rarely
Never

Base: All
Q31. How frequently do you use the mobile for accessing the Internet?

Frequently
Occasionally
Rarely
Never

Base: All
Q32. How frequently do you use the mobile for playing games?

Frequently
Occasionally
Rarely
Never

Base: All
Q33. How frequently do you use the mobile for voicemail?

Frequently
Occasionally
Rarely
Never

Base: All
Q34. Before buying the mobile, what information sources, if any, were used to help choose it?

Base: All
Q35. How important were each of the following factors when choosing the mobile phone?

Very important
Quite important
Neither important nor unimportant
Not very important
Not at all important
The overall price
The price of the phone itself
The cost of the calls
The cost of rental
The network provider
Line/sound quality
Coverage/reception
The look/feel of the handset
Being on the same network as friends/family
Customer service

Base: All
Q36. To what extent do you agree or disagree with the following statements?

Agree strongly
Agree a little
Neither agree nor disagree
Disagree a little
Disagree strongly
I have compared prices/packages since obtaining my mobile
I have looked for cheaper deals since obtaining my mobile
I have looked for better deals (such as better package on offer)
I believe I am getting the cheapest deal available
I am getting the best quality (network) coverage for my needs
I am getting the best all-round deal for my needs

Base: All
Q37. How interested are you in changing to better or cheaper deals for your mobile phone?

Very interested
Quite interested
Neither interested nor uninterested
Not very interested
Not at all interested

Base: Those not interested in changing to a better or cheaper deal
Q38. Why are you not interested?

Base: All
Q39. Which of the following do you consider to be your main method for:-

a) making phone calls
b) receiving phone calls

Fixed phone at home
Mobile phone
Payphone
Fixed phone at work
Other method

Base: All
Q40. Which of the following types of products do you have in your household?A land-line telephone

Access to the Internet via a PC (i.e. Personal Computer or Mac)
Access to the Internet via a television set
Digital Television

Base: Those with a fixed-line phone at home
Q41. Approximately how much is your TOTAL landline household telephone bill per quarter including line rental and VAT?

Base: All
Q42. What is the total gross annual income of your household?

Appendix D

Summary of questionnaire used in fixed study, March/April 2003

NB: Details of the questionnaire used to inform the preliminary results described in Chapter 4 and Appendix B are available on request.

Switched line questionnaire

Screener

Base: All
S1. Do you have a fixed line in your home?

Base: All with a fixed line
S2. Are you the person responsible or jointly responsible for making the decisions about your fixed line and Internet services?

Base: All with fixed line and responsible or jointly responsible for making the decisions about your fixed line phone and Internet services
S3. Does your household pay the whole phone bill itself or does any third party e.g. work, pay for some or all of your bill?

Fixed line section

Base: All with fixed line at home, responsible or jointly responsible for making decisions about fixed line and Internet services and household pays all/some of the bill

Base: All
Q1. How many telephone lines are there in your home? By this I mean the number of separate lines, not the number of telephone handsets or extensions. Please do not include mobile phones.

Base: All with more than one line
Q2. Which of the following best describes what your household uses the extra line(s) for?

Internet only
Calls only
Internet and calls
Something else

Base: All
Q3. Do you rent any of your telephone handsets?

Base: All
Q4. Which of these companies supplier the telephone line(s) in your home?

BT
NTL
Telewest
Kingston
Other – specify

Base: All
Q5.1 In addition to BT and cable companies you can get telephone services from other suppliers by using the line already in your home. Which, if any, of the following types of these Indirect Access suppliers are you aware of?

Suppliers that – you enter a short code before you dial the number you wish to call or you have a box attached to your phone which automatically does this for you

Suppliers that – you tell them in advance which calls you want to use them for, and these calls will automatically go through these type of suppliers.

Suppliers that you buy a prepaid card and you dial a freephone or local rate number before each call

Base: All
Q5.2 And do you currently use any of these types of Indirect Access suppliers?

Base: All who use an Indirect Access type supplier
Q6. Does your household use this supplier for all calls or just some calls?

Base: All who use an Indirect Access supplier for some calls only
Q7. Does your household use this supplier for all, some or none of the following types of calls?

International calls
National calls
Local calls
Calls to mobiles
Internet calls/ usage
Business/ work related calls
Other call types

Base: All who do not use and Indirect Access type supplier
Q8. Why do you not use any of these suppliers?

Base: All who do not use and Indirect Access type supplier
Q9. If you found out you could make savings by switching to one of these suppliers, would you consider using them?

Base: All
Q10. Which of the following aspects of your fixed telephone service are most important to you? I would like you to choose the one you think is the MOST important out of the two options.

Cost of calls or Cost of line rental
Overall cost or Reliability of service
Customer service or Overall cost
Overall cost or Ability to solve faults quickly
Range of services offered or Overall cost

Base: All
Q11. How often do you make international calls?

Base: All who make International calls
Q12. Which of the following destinations do you make international calls to?

Ireland
Rest of Europe
USA/ Canada
Australia/ New Zealand
Somewhere else

Base: All
Q13. Thinking about the different types of calls your household makes in an average week. Can you tell me approximately how many of the calls (excluding any calls made to use Internet or send emails) are…

Local calls
National calls
International calls (Base: only those making International calls at least once a week)
Calls to mobile numbers
Any other types of calls (e.g. premium rate calls)

Base: All
Q14. Thinking about the average number of calls your household makes per week, I would like you to split each type by the time of day these calls are made.

So for local calls your household makes approximately (actual number) per week. How many do you think are made IN PERCENTAGE TERMS during the Daytime, Evening Weekday and Weekend – all must add to 100 per cent.

And now for national calls,
International calls,
Calls to mobiles,
Any other call types

Base: All
Q15. Now I would like you to consider your TOTAL household spend per quarter on ALL fixed telecom services and ALL suppliers used (including line rental and VAT). Please do not include any mobile phone bills, or any subscriptions for Pay-TV or Internet services?

Base: All
Q16. Can I just check, is that your total monthly or quarterly spend?

Base: All
Q17. Approximately how much money would you need to save in total each QUARTER before you would consider switching to another supplier for your fixed line telephone services?

Base: All
Q18. Do you pay any of your fixed-line phone bills by direct debit?

Base: Those that do not pay by direct debit
Q19. You can save about £1 a month paying by direct debit. Before now were you aware of this?

Base: All
Q20. Have you ever asked your fixed line supplier about call charges, such as how much they charge you for local calls, national calls or calls to specific countries?

Base: All who haven’t asked for details about call charges
Q21. Why haven’t you asked for any call charge details?

Base: All
Q22. Have you ever used anyone other than your current suppliers for your fixed line telephone services at home?

Base: All that have used another supplier
Q23. Why did you switch supplier?

Base: All
Q24. Do you think you’re using the cheapest package with your current supplier?

Base: All
Q25. Do you think other suppliers could offer you a cheaper deal?

Base: All who think other supplier could offer them a cheaper deal
Q26. Why haven’t you moved to the cheapest deal with another supplier?

Base: All
Q27. Realistically, would you consider switching if another supplier could offer you the savings you previously stated you would require?

Base: All who wouldn’t consider switching
Q28. Why would you not consider switching to a cheaper deal with another supplier?

Base: All
Q29. Apart from being cheaper, what else would a telephone supplier need to offer before you would consider switching?

Base: All
Q30. How satisfied are you with the following?

Your fixed line service overall
Reliability of your fixed line service
Overall value for money from your fixed line telephone service

Base: All
Q31. To what extent do you think that suppliers of fixed line telephone services differ in their…?

Costs
Service reliability
Range of services offered
Customer service
Reputation/ trustworthiness

Base: All
Q32. What sources of information are you aware of that can assist you to compare and help you choose a telephone service supplier?

Base: All
Q33. Realistically, would you use the following information to compare telephone suppliers?

Information comparing the prices of different suppliers
Information comparing the time taken to repair faults
Information comparing the time taken to deal with complaints and enquiries
Information on the range of services offered
Information comparing the accuracy of bills
Information comparing levels of customer satisfaction and customer experience

Base: All interested in using any of the above information
Q34. And where would you go to get this information?

Base: All
Q35. Could you tell me whether you agree of disagree with the following statements about the fixed telecoms market?

I don’t know much about the choices available
It’s difficult to get any information on the choices available
It is easy to compare the choices available
I’m not really interested in using information on quality to compare the choices available
I’m more interested in the general reputation of a supplier than specific performance information
I prefer to stick to a supplier I know rather than shop around for the cheapest deal
I’m not interested in what other customers’ experiences have been

Internet section

Base: All
Q36. Do you or does anyone in your household have access to the Internet/ world wide web AT HOME?

Base: All with Internet
Q37. Are you aware of any Internet service providers offering service in your area? If so which ones?

Base: All with Internet
Q38. What is the name of your household’s MAIN Internet service provider?

Base: All with Internet
Q39. Why did you choose your ISP rather than one of the other ISPs

Base: All with Internet
Q40. Do you use the same company for your telephone and Internet services?

Base: All with Internet who use same company for phone and Internet
Q41. Are you billed for your Internet service and telephone on the same bill, or do you receive a separate bill?

Base: All billed for Internet and telephone on same bill
Q42. When deciding which supplier to use for your Internet service, how important was the fact that your Internet service and phone were on the same bill? Which of the following statements best describes your view…

The most important factor
An equally important factor along with others
It was important but other factors were more important
I was aware of it but it was not very important
I did not even take it into account

Base: All with Internet
Q43. How many hours in total would you say you and members of your household spend using the Internet at home in a typical week?

Base: All with Internet
Q44. Thinking about when you and members of your household use the Internet, how does the time spent break down during a typical week?

How many hours are spent on weekdays in the day, against weekday evenings, and weekends? (Total hours must add to total number of hours in Q43)

Base: All with Internet
Q45. Which of these types of connection does your household use to connect to the Internet at home?

Ordinary phone line Dial-up access using a modem.
ISDN LINE Mid speed access/faster than an ordinary phone. You can make voice calls at the same time as using the Internet.
BROADBAND ACCESS VIA BT or other line but NOT Cable line. Much faster than ordinary phone – is always on and unmetered access. You can make voice calls at the same time as using the Internet.
BROADBAND ACCESS VIA Cable companies such as NTL/ Telewest but NOT A BT line - Much faster than ordinary phone – is always on and unmetered access. You can make voice calls at the same time as using the Internet.
Other (SPECIFY)
Don’t know/no answe

Base: All with ISDN or broadband connection
Q46. How much do you pay each month for your (ISDN/ Broadband) service? Please do not include any other phone charges or bills, only the subscription/ flat rate fee you pay.

Base: All using ordinary phone line (dial-up) connection
Q47. What sort of package do you have?

Subscription and calls
Pay as you go
Unlimited at certain times
Unlimited for a certain amount of time
Fully unlimited

Base: All using subscription and calls or unlimited package
Q48. How much do you pay each month for this subscription/ flat rate fee?

Base: All using an unlimited package or ISDN or broadband
Q49. Have you ever used a pay as you go package for your home Internet service where you pay for all calls/ time spent online?

Base: All using an unlimited package or ISDN or broadband and previously used pay as you go
Q50. Since changing to a flat rate package offering unlimited usage, has the amount of time your household uses the Internet increased, decreased or remained about the same?

Base: All using an unlimited package
Q51. Would you consider switching to any of the following if they were considerably cheaper for your household’s Internet usage?

Broadband Internet access
Pay as you go Internet access

Base: All who wouldn’t consider switching to pay as you go
Q52. Why would you not consider switching to a pay as you go Internet package if it was considerably cheaper for your household?

Base: All using a subscription and calls package or pay as you go
Q53. Why do you not use an unlimited use Internet package where you pay a flat rate fee and can use the Internet for as long as you like?

Base: All using a subscription and calls package or pay as you go
Q54. If it was considerably cheaper for your household’s Internet usage, would you consider switching to an Internet package where you pay a flat rate fee and can use the Internet for as long as you like?

Base: All with Internet
Q55. How much money would you need to save each month before you would consider switching to a different type of Internet package or ISP?

Base: All with Internet
Q56. How satisfied are you with the following…?

Very satisfied
Fairly satisfied
Not very satisfied
Not at all satisfied
Don’t know/ no answer
Your home Internet service overall
The speed of your home Internet service
The quality of your home Internet service
The cost of your home Internet service

Base: All with Internet
Q57. What information did you use to assist you choose your ISP and Internet package?

Base: All with Internet
Q58. Realistically, would you use any of the following information to compare the quality of service of different Internet service and broadband suppliers?

Base: All interested in any of the above information
Q59. Are you more interested in information on ordinary dial up Internet or broadband Internet services or both equally?

Base: All with Internet
Q60. Where would you go to get his information?

Base: All with Internet
Q61. Since you’ve been with your current ISP/ package have you ever compared packages/ prices with other suppliers?

Base: All with Internet
Q62. Do you think you’re getting the cheapest deal for your Internet service?

Base: All that do not think they are getting the cheapest deal
Q63. Why have you not switched to a cheaper deal?

Base: All with Internet
Q64. Would you consider switching to cheaper ISP/ package type in the future?

Base: All who would not consider switching to a cheaper ISP/ package
Q65. Why would you not consider switching to a cheaper ISP/package?

Base: All with Internet
Q66. As well as cheaper prices, what else would an Internet supplier or package need to offer before you would consider switching?

Base: All with Internet
Q67. Do you shop around separately for your Internet services or do you consider them part of your main telephone service?

Pay-TV section

Base: All
Q68. Which, if any, of the following Pay TV services do you think are available in your area?

Satellite: Sky
Cable: ntl, Telewest, Kingston Interactive
Terrestrial: Freeview

Base: All
Q69. Which if any of the following TV services does your household have?

Cable: ntl
Cable: Telewest
Cable: Kingston Interactive
Terrestrial: Freeview
Base: All with Pay-TV

Q70. What were you main reasons for choosing (name mentioned at Q69)?
Base: All that have ntl, Telewest, Kingston Interactive or Sky Pay-TV

Q71. Does your household subscribe to any premium channels such as sports or films?
Base: All with Pay-TV

Q72. Was your current Pay-TV supplier your first choice of supplier
Base: All using Pay-TV supplier that was not their first choice

Q73. What stopped you from having your first choice of Pay-TV supplier?
Base: All that have ntl, Telewest, Kingston Interactive or Sky Pay-TV

Q74. Which of the following statements best describes how you felt about the package of channels that were available to you?

I was able to choose a package of channels that suited me or….
I had to pay for channels I didn’t need to get the ones I wanted

Base: All with Pay-TV
Q75. Overall, how satisfied are you with your current Pay-TV service?

Very satisfied
Fairly satisfied
Not very satisfied
Not at all satisfied

Base: All with Pay-TV
Q76. And overall value for money?

Very satisfied
Fairly satisfied
Not very satisfied
Not at all satisfied

Base: All that have ntl, Telewest, Kingston Interactive or Sky Pay-TV
Q77. How much do you pay each month for your Pay-TV services? Please do not include any other phone charges or bills, only the subscription you pay for your Pay-TV service.

Base: All that have ntl, Telewest, Kingston Interactive or Sky Pay-TV
Q78. Do you use the same company for your telephone and Pay-TV services?

Base: All who use the same company for phone and Pay-TV
Q79. You said you use the same company for your telephone and Pay-TV services. Are you billed for your pay-TV service and telephone on the same bill, or do you receive a separate bill?

Base: All billed on same bill for phone and Pay-TV
Q80. When deciding which supplier to use for your Pay-TV service, how important was the fact that your Pay-TV service and phone were on the same bill? Was it…

The most important factor
An equally important factor along with others
It was important but other factors were more important
I was aware of it but it was not very important
I did not even take it into account

Base: All that have ntl, Telewest, Kingston Interactive or Sky Pay-TV
Q81. Thinking about your contract with your current Pay-TV supplier, how long is this particular contract for?

Base: All with Pay-TV
Q82. Thinking back when you had your Pay-TV installed, how important was it for you to keep your existing aerial? Would you say it was…

Very important
Fairly important
Not very important
Not at all important

Base: All with Pay-TV
Q83. Since you’ve been with your current Pay-TV supplier have you ever compared packages/ prices with other suppliers?

Base: All with Pay-TV
Q84. Do you think you are getting the cheapest deal?

Base: All with Pay-TV that do not think they are getting the cheapest deal
Q85. Why haven’t you switched to a cheaper deal?

Base: All with Pay-TV
Q86. Would you consider switching to any of the following suppliers for Pay-TV if they offered the same service at a cheaper price?

Freeview
Sky
Cable
Packages section

Base: BT customers
Q87a. Which, if any, of the following BT packages do you have or use?

BT Together
BT Surf Together
Call and Save
Light User Scheme
Friends and Family
None of these

Base: ntl telephone customers
Q87b. Which, if any, of the following ntl packages do you have or use?

3-2-1
Talk unlimited
Talk unlimited local
Talk unlimited 24
Phone and Surf
ntl home
None of these

Base: Telewest telephone customers
Q87c. Which, if any, of the following Telewest packages do you have or use?

3-2-1
Talk unlimited
Talk evenings and weekends
Surf and unlimited Internet
Blueyonder
None of these

Base: All who have or use BT Surf together, OR ntl Phone and Surf OR ntl Home or Telewest Surf and unlimited Internet OR Blueyonder (‘bundled’ packages)
Q88 Why did you choose a package for phone and Internet or Pay-TV services rather than buying each service separately?

Base: All who have or use BT Surf together, OR ntl Phone and Surf OR ntl Home or Telewest Surf and unlimited Internet OR Blueyonder (‘bundled’ packages)
Q89. And which part of your package is most important to you?

Telephone
Internet
Pay-TV

Base: All who have or use BT Surf together, OR ntl Phone and Surf OR ntl Home or Telewest Surf and unlimited Internet OR Blueyonder (‘bundled’ packages)
Q90. How would you like to see the packages improved?

Base: All who have or use BT Surf together, OR ntl Phone and Surf OR ntl Home or Telewest Surf and unlimited Internet OR Blueyonder (‘bundled’ packages)
Q91. If it worked out cheaper to buy your services from separate suppliers would you consider switching?

Base: All
Q92. And thinking about all your telecoms, Internet and Pay-TV services, which of the following is most important to you? I would like you to choose the one you think is the MOST important out of the two options.

Buying from a single supplier or Getting the cheapest deal
Getting the cheapest deal or Getting best quality services
Overall value for money or Cheapest prices
Overall value for money or Buying from suppliers I trust

Base: All
Q93. Some people find it difficult to use a phone because of a health problem or disability. Do any of the following apply to you or anyone else in your household?

Wear a hearing aid or have poor hearing
Have difficulty speaking clearly enough to be heard on a phone
Have difficulty seeing numbers on the phone
Have difficulty picking up, holding a phone or dialling
Have any other health problem or disability which affects use of the phone