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Telecoms firms accused of overcharging landline customers

Emma Lunn
Written By:
Emma Lunn
Posted:
Updated:
19/04/2023

A group of economists have accused Ofcom of overlooking £200m in ‘discriminatory overcharging’ by TalkTalk, Virgin Media and SSE.

A study by economists at Fideres, an organisation that investigates corporate and financial wrongdoing, found that the three firms have been overcharging landline customers since at least 2018. It says this action is “discriminatory” as most landline-only customers are elderly.

In 2017, Ofcom investigated BT and found it was overcharging voice-only landline customers. BT then agreed to reduce prices by 37%. However, Ofcom allowed Talk Talk, Virgin, and other voice-only landline providers to maintain the same high prices that prevailed before the investigation and before BT’s price reduction.

Fideres has notified Ofcom of this potential breach and asked it to take action.

Paul Vella at Fideres said that by allowing Talk Talk, Virgin, and other voice-only landline providers to maintain prices approximately 60% above the fair-rate shown by BT’s reduction, Ofcom may have “tacitly allowed them to overcharge consumers”.

He added that “due to low competition in the voice-only landline market, this overcharge may constitute an abuse of UK competition law.”

Indirect discrimination

The report suggested that this harm disproportionately affects elderly consumers as more than 40% of voice-only landline customers are over 75, and two-thirds are over 65. These prices may therefore also constitute indirect discrimination under the Equality Act.

Fideres calculated that the overcharging totals £200m since 2009 – £100m by Talk Talk, £50m by Virgin Media, and a further £50m by smaller providers.

BT overcharging

In 2017, Ofcom found that BT had overcharged voice-only residential landline customers. It observed that these customers had been exposed to increasing line rental prices since 2009, despite falling wholesale prices.

Following the consultation, BT put forward a voluntary proposal and lowered prices effective April 2018 from £18.99 per month to £11.99 and pegged further price increases to CPI.

Among BT’s competitors, none except the Post Office implemented similar price reductions.

Fideres said that Talk Talk and other firms maintaining the same prices while BT and the Post Office reduced prices by 36.8% is equivalent to Talk Talk and other companies becoming 62% more expensive than BT.

‘Abusive pricing’ policies

Voice-only customers rarely change their provider. According to the 2016 Ofcom Switching Tracker, only 6% of voice-only customers had changed their provider in the past year, while 74% had used the same provider for the past 10 years, and 86% for the past five years. This sets voice-only customers apart from other landline purchasers, who change their provider far more frequently.

The Fideres report said: “Given a dominant position over their customers, each firm has a legal responsibility under UK Competition Law to refrain from unfair or abusive pricing practices. Normally, it is difficult to determine what a ‘fair’ market price might be in a monopolized market given the lack of a competitive counterfactual, but here Ofcom’s finding, and BT’s voluntary price reduction provides a clear benchmark.

“This is a particularly strong benchmark given that other landline providers see the same wholesale cost as BT – they all rely on Openreach network.”

What does Ofcom say?

An Ofcom spokesperson said: “The number of customers who buy only a landline, without any broadband, has been declining in recent years. In 2020, there were around one million landline-only customers in total, and over 75% of them were with BT.

“If we identify competition issues, we can impose specific regulatory obligations on providers that we find to have ‘significant market power’. When we carried out our review of the landline-only market, we provisionally concluded that BT had significant market power, so we proposed a one-off cut to its prices. BT agreed to do this in full, which addressed our concerns. The Post Office – which held the second largest share of the landline-only market at the time – followed suit and also cut its prices.

“BT’s price cut has been locked in until at least 2026, which means customers in this market continue to have a cheaper option available to them, should they wish to switch to it.”