The UK telecoms market for residential consumers has improved markedly in recent years, but are business customers equally well served? This SPC Network report produced for UKCTA explores where market failures still exist and sets out an eight point action plan for Ofcom.
Electronic Communications Services are vital for businesses both to reduce their costs and to develop and deliver products and services to their customers. Home-working, video and telephone conferencing and instant availability of management information are examples of how businesses reduce cost. The importance of telecoms as a business channel is evidenced by 17 million UK residents using on-line banking in 2006.
In 2005, Ofcom completed its Telecoms Strategic Review (TSR). In the TSR, Ofcom identified the following as characteristics of a well functioning market:
choice: including different solutions for increasingly diverse consumers, high levels of innovation, and a diverse set of sustainable suppliers;
price: quality services at competitive prices;
information: informed consumers who are able to make well-informed choices; and
low switching barriers: ease of switching between suppliers.
In a market with these characteristics supplier firms have the incentive both to reduce their costs and pass those reductions on to consumers through lower prices, and to continue to innovate with new products and services.
Ofcom found in its TSR that problems still remained which meant that the market was not “well functioning”. To address these problems Ofcom introduced a number of changes in the way the industry was structured which addressed many of the competition problems associated with products aimed at residential and small business consumers. In particular, the TSR required BT, as the dominant operator in local access markets, to provide key access products on an “Equivalent” basis to its competitors and its own downstream (retail) business. These changes have been largely successful with regard to broadband, in particular through Local Loop Unbundling (LLU), in residential and small business markets.
However, for medium to large business customers competition problems remain which result in these important customers paying higher prices and having less choice.
The key conclusion of this study is that, whilst UK business customers tend to be well informed, they are lacking choice, incur higher costs than necessary and are faced with substantial switching barriers. Business customers are therefore not able to enjoy the same benefits of a properly functioning market as residential consumers. Since telecoms is an important input for many firms, there is a knock-on effect on the rest of the UK economy as firms are themselves less efficient, and therefore less competitive, than they might otherwise be.
