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The Office of Telecommunications: Helping consumers benefit from competition in the telecommunications market

Oftel has taken steps to improve consumer awareness in the fixed line telecommunications market to help consumers take advantage of the choices available, according to a report presented to Parliament today by Sir John Bourn, the head of the National Audit Office. But the report recognises that while some consumers will choose not to switch supplier, Oftel could focus more sharply its efforts to raise consumer awareness so that more consumers can realise savings. His report also found, however, that consumers are benefiting from Oftel’s work to improve competition by investigating and addressing anti-competitive behaviour.

Raising consumer awareness

The report focussed on the fixed line market as competition is less fully developed. Oftel aims to obtain the best deal for consumers, but many consumers are not well motivated to change their telephone supplier. The effort involved in switching may also dissuade them from exercising their choice. Although numbers continue to increase, with around one-third of consumers having switched at some stage, an NAO survey in September 2002 found that 68 per cent of consumers had made no changes in the last two years to the way they buy these services.

The savings, if any, that consumers can make varies according to their circumstances – some of the bigger savings can be achieved by moving to a more appropriate package with their existing supplier. It is not, however, easy to identify which consumers can benefit and by how much. The report recommends that Oftel should continue developing its assessment of which consumers are losing out through a lack of information, to identify the opportunities for them to get more for their money.

Oftel uses various methods of distributing information to consumers. Many consumers, however, are still not aware of important features of the market, such as indirect access operators. These operators are generally cheaper than BT’s standard tariff, especially for international calls. Although Oftels research points to high general awareness of indirect access, the NAO survey found that 77 per cent of consumers could not name a single indirect access operator. The report recommends that Oftel should provide, where appropriate, more practical guidance that reaches the consumers it is targeting as part of its consumer information strategy.

Suppliers offer a wide range of tariffs and discount schemes and it is difficult for consumers to calculate which tariff, from which supplier, would amount to the better deal than their existing service. To help consumers, Oftel has encouraged the development of price comparison services through an accreditation scheme – it accredited the first scheme in June 2003. The report concludes that Oftel should consider how to make it easier for consumers to make choices.

Stopping and deterring anti-competitive behaviour

Anti-competitive behaviour by telecommunications suppliers can lead to less choice and higher prices for customers. Oftel seeks to resolve disputes between suppliers that may involve allegations of such behaviour and initiates some investigations of its own. Oftel found grounds for action in 33 per cent of the 187 investigations in the two years to June 2002.

Oftel took, on average, just over six months to complete investigations in the two years to June 2002, four weeks longer than in 1998. In advance of a new EU requirement, effective from 25 July 2003, that disputes be resolved within four months (except in exceptional circumstances) rather than the current six months, Oftel is seeking to speed up its investigations. In the second half of 2002 the number of investigations taking more than four months fell to 40 per cent of the total. In April 2003 Oftel introduced new procedures for handling disputes to ensure smooth implementation of the new statutory obligations. The report recommends that Oftel should ensure that the latest changes to the way it manages its investigations enable it to complete them within four months.

Oftel’s internal assessment of the quality of its investigations completed in the two years to June 2002 found that 56 per cent were ‘good’ or ‘very good’. The report recommends that Oftel should carry out each year a fuller overview of its work in identifying, deterring and stopping anti-competitive behaviour.

"It is hard for consumers to understand how to get a good deal for fixed-line telephones, and therefore many do not try. Oftel has been working to help raise awareness, but it needs to have a better understanding of why consumers behave the way they do and should also make it easier for them to compare the tariffs on offer, for example by building on its tariff comparison accreditation scheme."

Sir John Bourn, head of the National Audit Office

Notes for Editors

 

  1. The report follows up the Offices 1998 report on how Oftel tackles and deters anti-competitive practices by telecommunications suppliers, and considers also how it encourages consumer awareness of the market, focusing on the fixed-line market. The report should provide the new communications regulator, Ofcom, with a foundation for developing these activities when it takes over from Oftel in December 2003.
  2. The Director General of Telecommunications, David Edmonds, heads the Office of Telecommunications (Oftel). Oftel was set up under the Telecommunications Act 1984. Its goal is to make sure consumers receive the best quality, choice and value for money for all their telephone services. Oftels functions are to be taken over by the Office of Communications (Ofcom), which is scheduled to be operational by the end of 2003 after enactment of the Communications Bill.
  3. Individual households spend, on average, some 310 each year on fixed line telecommunications, though this masks significant variations by individual consumers. For almost half of consumers, the cost of line rental exceeded call costs.
  4. Most residential consumers have a choice of three types of fixed line telephone service:
    • the original (mostly BT) network;
    • one of two cable networks that provide television and telecommunication services. Their networks, which cover separate areas, are available to about 60 per cent of households; and
    • over 200 indirect access operators. Consumers can choose to route their call through a supplier that does not own the network where the call originated. This is usually achieved by dialling a four-digit routing prefix, and results in separate bills for call and line rental.
  5. Oftel has a particular interest in raising consumer awareness of the issues to be considered in choosing a supplier in view of its policy of encouraging the development of effective competition. It recognises this by making 'well informed consumers' one of its four high level strategic objectives.
  6. The Director General of Telecommunications has a statutory duty to investigate all complaints, including those involving anti-competitive behaviour. He has statutory powers to carry out investigations of suspected anti-competitive behaviour and to stop it. In addition, he has a duty to resolve disputes about interconnection, the process of linking suppliers' networks. Preventing anti-competitive behaviour is another of Oftels four high level strategic objectives.
  7. We reviewed the outcomes of the 187 investigations completed by Oftel in the two years to June 2002. Oftel found grounds for taking action in 62 cases (33 per cent). Oftels policy is to keep regulatory action to the minimum necessary to achieve its aims. It took formal regulatory action in 19 of the 62 cases (31 per cent). For the remaining cases, Oftel felt that it could rely on the companies to implement the action agreed with them, thereby resolving these cases without the need for formal action.
  8. Press notices and reports are available from the date of publication on the NAO website at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474. The NAO has produced a leaflet which gives advice to consumers on getting a better deal on their fixed line telephone. It is also available on the website.
  9. The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office which employs some 800 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

PN: 50/03