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Consumer awareness and use of competition in the residential fixed line market |
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May 2000 Growth in the phoned population Which consumers are making the most and least use of commpetition Why are some consumers making more use of competition than others? Awareness of indirect access operators Reasons for not changing to another supplier Factors that would encourage switching Savings that would encourage consumers to switch 1. During March 2000, a sample of 2046 UK residential consumers were asked by research agency IPSOS-RSL, on behalf of Oftel, about their awareness and usage of suppliers in the fixed line market. This was an update of research conducted in September 1999, the results of which will contribute to Oftel’s Price Control Review. 2. 50% of the UK have a choice of BT or cable suppliers for their home telephony services. However, consumers also have a choice of companies such as Nextcall and Localtel who offer complete rental and calls service using BT’s lines, and indirect operators who offer calls, again using another supplier’s lines. 3. Despite the fact that consumers have a choice of at least three types of supplier, and a considerably larger number of companies to select from, 4 in 5 still use BT. This survey examines awareness of alternatives, reasons for not making use of alternative suppliers, and factors that would encourage consumers to switch. Awareness 4. There has been a slight improvement in consumer awareness of suppliers other than BT. 44% claimed to have heard of ‘indirect operators’ compared with 41% last September. Currently 1 in 3 consumers (34%) are not aware of any choice in their area which has fallen from about 2 in 5 (39%) in September. Usage 5. There was no change in the proportion of consumers using BT at 78%, despite a slight rise in the phoned population from 94% to 95%, and a similar 1% rise in homes with more than one line, from 11% to 12%. Similarly, there was no change in the proportion of consumers using an alternative or additional supplier to BT, at about 1 in 4. 6. 25% of consumers using the Internet at home now have a second line for doing so, up slightly from 23% in September. These, along with other consumers who have second lines, are making most use of competition, with 2 in 5 using an alternative or additional supplier to BT. 7. Consumers making most use of competition still tend to be: - younger (under 44), - large households (more than 5), - with more than 1 line. 8. Consumers making least use of competition still tend to be: - Older respondents - small households - AB social grades 9. To some extent this will be due to their lower awareness of alternative suppliers, despite notable improvements since September. However, they also claim to be satisfied with their current supplier, even though they do not necessarily think their supplier is the offering the cheapest deal. They are most likely to say that there is nothing specific that is likely to persuade them to switch to an alternative supplier. Switching behaviour 10. The main reason given for not changing supplier was satisfaction with current supplier. Almost 3 in 5 consumers said they would be encouraged to change if cheaper prices were offered. The average saving per quarter needed to persuade consumers to change supplier was just over 25%, although about 1 in 6 said they wouldn’t change for any % saving. Growth in the phoned population 11. Since September 1999, there has been a slight rise in the fixed phone population from 94% to 95%. There has been a similar rise in the percentage of homes with more than one fixed line from 11% to 12%. 12. The reduction in homes without a fixed line phone was most notable for those on very low annual incomes (less than £9,500), falling from 15% to 11%. 13. Multi lines were prevalent in larger households (14%), the AB social grades (15%), and the larger income groups (18% of those with incomes of over £17,500). Most notable were consumers connected to the Internet, of whom 25% now have a second line. 14. Despite the slight rise in the phoned population and homes with more than one line, there was no change in the number of consumers using BT at 78%. Similarly, there was no change in the proportion of consumers using an alternative or additional supplier to BT, at about 1 in 4. 15. Of those using an alternative supplier to BT, ntl was most popular at 9%, followed by Cable & Wireless and Telewest at 8% and 5% respectively. Indirect and Calls and Access suppliers accounted for less than 2% amongst those surveyed. Which consumers are making most and least use of competition? 16. Still making most use of alternative suppliers, primarily cable, include:
17. Internet users in general are no more likely to be making use of competition than those without the Internet. However, the 25% of Internet users with second lines for doing so, and other consumers with second lines, are still making best use of competition, with about 2 in 5 using an alternative or additional supplier to BT, although there has been no change in this figure since September. This compares with about 1 in 5 of those with single lines making use of alternatives of additions to BT. Least use of competition 18. Despite being most likely to have a second line, the AB social grades are generally making the least use of competition, and usage amongst this group has if anything, fallen slightly since September, from 18% to 15% using an alternative or additional supplier to BT. 19. Small households, older respondents (aged 55+), and single line homes were also less likely to be using competition. Why are some consumers making more use of competition than others? Awareness of choice of suppliers 20. Differing levels of awareness of alternative suppliers would be one of the most obvious explanation for differing usage of competition. If consumers are not aware of alternatives to their current supplier, or have difficulty obtaining information about what choices are available to them, they are unlikely to consider switching supplier. 21. There has been a marginal improvement in awareness of competition over the six months to March 2000. Previously 23% of consumers thought they had no alternative choice in their area, and a further 16% were unsure. Encouragingly, these figures have both fallen since September, to 20% and 14% respectively. Additionally, there has been sight increase in consumer awareness of ‘indirect’ operators, which has risen from 41% to 44%. However, further improvement is needed, as 1 in 3 consumers still appear to be unaware or unsure of the choices available to them. Least aware of choice 22. Awareness of competition and choice still tended to be lowest amongst
However, awareness amongst these groups has improved notably since September 1999. 23. Regionally, awareness is still lowest in the South at 38% unaware / unsure although this has improved from 46% last September. 24. Between September 1999 and March 2000, improvements in awareness of choice was seen across most consumer sectors. However, in addition to the above mentioned groups, awareness of choice saw greatest improvement amongst those with using the Internet at home, and amongst renters rather than home owners. Regionally, improvements were greatest in Scotland and London. 25. Awareness of choice was highest amongst: - younger consumers - those working full time - larger households with children - those living in rented accommodation - heavy commercial TV viewers and those with Internet access. 26. Improvements amongst the lower income groups have resulted in little or no difference in awareness of alternative suppliers by income group. Similarly, there was no difference between consumers with different numbers of lines at home.
Awareness of ‘indirect operators’ 27. Just over 2 in 5 consumers (44%) claimed to have heard of indirect operators* and only 1-2% said they used them at home. This has improved slightly, from 41% in September 1999. 28. There was no evidence to suggest that consumers did not understand what was meant by ‘indirect operators’ as an explanation was given to avoid any misunderstanding or confusion as to what these are. Additionally, less than 2% spontaneously named any of the indirect companies when asked if what alternative suppliers were available to them. *indirect operators for the purposes of this study did not include calling cards. 29. Awareness of ‘indirect operators’ was lowest amongst the following groups:
30. Awareness of ‘indirect operators’ was highest amongst:
31. Although the ABs tended to be more likely than average to have heard of ‘indirect operators’ they were previously less aware of alternatives suppliers in their area than average. This perhaps suggests that whilst they claim to have heard of the ‘indirect’ concept, they are not fully aware that they can personally receive the service. 32. Awareness remained higher in London than elsewhere, which is unsurprising given the amount of advertising on public transport systems and stations, although notable improvements were seen in Scotland, rising from 32% to 45% since September 1999.
Reasons for not changing to another supplier 33. There was little change in reasons for not changing supplier between September and March. About 7 in 10 consumers gave ‘positive’ reasons for not changing supplier – including ‘satisfaction with current supplier’, and ‘current supplier best value for money’. Only 3% of customers had recently changed or were considering changing. 34. The remainder gave what could be considered ‘negative’ reasons for not changing including ‘its too much hassle/disruption’, ‘can’t be bothered’, ‘didn’t know could change/no choice in area’, ‘reliability/quality of another supplier may not be as good’, and ‘too difficult to work out which is cheaper/better’ 35. Elderly consumers were most likely to claim to be satisfied with their current supplier (predominantly BT), while the younger groups were more likely to have recently switched or be considering switching.
Factors that would encourage switching 36. Similarly, there was little or no change in factors that would encourage consumers to switch supplier. 37. Price was the main factor that would encourage consumers to switch, both cheaper prices from other companies, or an increase in price by their current supplier, mentioned by 2 in 3 consumers. Guarantees on reliability and quality of service of other suppliers would encourage 1 in 8 consumers to switch supplier. 38. Cheaper prices were mentioned considerably more by those with ‘advanced’ telecoms usage including mobile phones and Internet access, who as a result, are likely to have a higher telecoms spend. Larger households, particularly with children were also more likely to find cheaper prices an encouraging factor to switching supplier. Better information for consumers enabling them to compare the prices of different companies in their area, www.phonebills.org.uk recently published by the industry, should assist consumers identifying the cheapest deal. 39. A quarter of consumers surveyed still said that nothing would encourage them to switch supplier. These tended to be older, retired or unemployed consumers on low income. Given their lower levels of awareness of choice, it is unlikely that all of these customers will be on the optimal package for them, and could potentially gain most benefit from cheaper prices. Savings that would encourage consumers to switch 40. There was no change in the average quarterly saving required at 27%, that companies would need to offer to encourage consumers to switch supplier. Previous demographic differences in required savings have evened out and there was little difference between any of the groups. 41. There was no change in the 1 in 6 consumers who claimed they would not change supplier for any saving. Again, this was highest amongst the older, low income, and retired/unemployed, who are most satisfied with their existing service and whilst they don’t necessarily think it is the best value for money, they are least likely to consider switching.
42. The main purpose of this research was to assist in the provision of information for the 1999/2000 price control review. The results will feed into the next consultation document, expected in July 2000. Previous consultations raised questions about whether consumers are sufficiently well informed that they can effectively exercise choice among competing suppliers, and whether there are any potential barriers to switching. 43. This research indicates that 1 in 3 consumers are unaware that they have a choice of supplier, less than half of consumers claim to have heard of indirect operators, and fewer still of the calls and access operators. 44. About a quarter of consumers claimed to be using suppliers other than BT and only 1-2% were using indirect suppliers. Older consumers tended to be least aware and making least use of competition while younger consumers and larger households tended to be making most use. 45. The consultation document also raised questions about potential barriers to switching supplier. This research found that the main reason given by consumers for not switching to an alternative supplier was satisfaction with their current supplier. Only 5% said their current supplier was the best value for money. The recently published price comparisons www.phonebills.org.uk should enable more consumers in comparing prices, and assist them in getting the cheapest deal. 46. Inertia was also a barrier to switching, with ‘don’t want to switch’, ‘can’t be bothered to switch’ and ‘too much hassle to switch’ mentioned by about 1 in 4 consumers. Fewer than 1 in 10 consumers were concerned about disruption and the effort involved in changing supplier, and only 2% gave the specific reason of not wanting to change their phone number. Cheaper prices and a guaranteed quality of service would encourage a large proportion of consumers to switch supplier, which suggests this is currently a potential barrier. 47. Further research has been conducted on behalf of Oftel, examining consumers use of competition and switching behaviour in both the fixed and mobile markets. This should be published in June 2000.
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