Examination of Witnesses (Questions 80-99)
OFCOM
17 APRIL 2007
Q80 Mr Hoyle: Not for the person
who pays the bill it is not?
Mr Richards: There is a general
relaxation, removal of the retail price regulation for everybody,
and, as David says, we believe the competition is effective in
that area. There is a separate issue, which we do care about,
which is the issue of low-income users. There is a low-income
scheme, a low-user scheme, which has been developed and enhanced
in discussion between us and BT which covers the vast majority
of the poorest people in the country and protects them against
the amount that they can pay, and those people in that scheme
are protected from these changes. There is another set of issues,
which are the changes you are referring to, that BT proposed to
bring in, about the additional charges if you do not use direct
debit, additional charges if you leave them and go to a competitive
supplier and a whole range of different things. I think there
were five separate measures that they proposed to bring in. We
were alarmed when we saw those measures being proposed and we
got on the phone to BT straightaway. We had a couple of vigorous
exchanges with them and, as a result of that, I think three of
the measures that they were proposing to bring in were dropped.
We did that very carefully and those measures were dropped very
quickly. They are still proposing to move forward with two measures.
We have said in those cases we need to see that they are cost-based,
that they are justified in relation to the costs associated with
them, and also that they are justified on a broader look in the
market and in other sectors. So it is not something we are not
concerned about, we are very concerned about it; indeed, we have
had some very quick success in preventing BT from moving forward
with its proposals which we thought would be inappropriate and
unfair. The other two issues remain live. We are looking at them
and we are in dialogue with BT about those at the moment.
Peter Luff: Can I interrupt. Lindsay
anticipated a question someone was hoping to ask a little later
on. Can I bring Mark in briefly on this question now?
Q81 Mark Hunter: Thank you, Chairman.
I want to press a little bit further on this matter. Do you yourselves
think that BT's decision to change the price differential that
it gives to direct debit customers over other customers to a charge
on those not using direct debit is simply a public relations disaster
on their part, or from your perspective do you think there are
more significant regulatory issues underlying such price differentials?
From my perspective, and I suspect that of colleagues, our constituents
certainly do not understand why this price differential has been
put in place and they certainly do not appreciate it. I, like,
I am sure, other colleagues, have had lots of correspondence from
residents who think this is downright unfair, and I have to say
I suspect the majority of MPs would agree with them. I am very
interested in your view.
Mr Richards: Unlike the retail
price control, this is an area where we have had correspondence
as well, and that is one of the reasons we have been concerned
about it. We are obviously not going to make a comment on whether
it has been a PR disaster or not. What we are concerned about
in this area is making sure that BT is not doing something which
is exploiting its powerful position and therefore is out of line
with other companies, that does not contravene the protections
that are already in place for low-income users. Low-income users,
I think I am right in saying, are exempted from this change, if
they are in those schemes. Then what we need to do is look at
whether these changes are genuinely based on differences in costs,
because if they are not, then clearly BT are doing something which
would be, I think we could safely say, unreasonable. That is precisely
what we are looking at at the moment. I do not think we can get
to a position where we can say BT, or any other company in this
area, is simply not allowed, under any circumstances, to have
a differential price for direct debit, as opposed to other forms
of payment, when the underlying costs associated with direct debit
as opposed to a different method of payment may be quite different.
I do not think we can put ourselves in a position where we can
rule out any differential in price.
Mark Hunter: I am sorry, but I think
people are looking for the regulatory body which is relevant to
it, in this case yourselves, to take a lead on it, and it surely
cannot be right that people are being penalised simply for wanting
to pay their bills in a way that is different from that which
the company stipulates. It cannot be right. It goes against every
tenet of natural justice. These people are being penalised, and,
as you say, it is those on fixed incomes that are particularly
suffering. It is a disgrace that BT are able to get away with
this, and I want to know, and I suspect a lot of people out there
in the country want to know, what Ofcom as the regulator is doing
about it. You are telling us negotiations are in progress. Can
you tell us exactly what those negotiation are about, whether
or not you feel they are being successful, whether or not BT are
going to take this on board, or are they just content to ignore
it?
Peter Luff: Just because of pressure
of time, Paul Farrelly has some questions here too, so we will
take his questions and wrap them in an omnibus answer.
Paul Farrelly: I was very glad to hear
you say that you will take a close look at this to make sure that
any differentials are not related to cost. Do you apply that same
reasoning to the issue of late payment charges?
Miss Kirkbride: Can I ask a question
on this one as well? Other companies competing with BT force you
to sign up to a direct debit and, therefore, anything that affects
BT will affect the other companies, because it is not clear whose
costs—
Q82 Peter Luff: This is obviously
a hard evidence session. It has been an important issue over the
last few weeks. Can you try and give an omnibus answer to those
questions?
Lord Currie of Marylebone: I think
our position is that we cannot rule out the possibility of a differential
between direct debit payments and others. The market is increasingly
competitive. Companies are not able to put those things in place,
and it happens in other sectors on a very common basis, but it
has to be cost-based. In other words, if it is more efficient,
cheaper, to process a direct debit payment than other forms of
payment—
Q83 Miss Kirkbride: Which it clearly
is.
Lord Currie of Marylebone: —which
it is, in general it is appropriate that that is reflected in
a differential. The question is: what is the size of that differential?
We are looking at that question.
Q84 Paul Farrelly: I want to pursue
you on this issue of relating cost to late payment. As you will
know, this is a huge issue in the banking industry and the Office
of Fair Trading has moved as swiftly as Hannibal taking all the
elephants in Africa over the Alps as far as many people are concerned.
Is this an issue for you as well?
Mr Richards: All these things
are an issue. Let us be clear. Are we concentrating on this? Yes.
Have we taken this seriously and have we done something about
it? Yes. As I have said, three of the five proposals that BT originally
made which caused such consternation have been dropped as a result
directly of our intervention. There are two remaining, which we
are looking at in the way that we have been describing. We need
to make sure that there are proper protections and there is no
unfairness in relation to low-income families, and we need to
make sure that the low-income scheme meets that objective. We
broadly think it does. We then need to look at whether there are
other people who are also affected and whether they are, in effect,
being subject to what would be unfair contract terms here. That
is exactly what we are looking at at the moment. Late payment
terms would come into the same category. Is this part of an unfair
contract and is it BT abusing a position which it should not be
doing and, therefore, does it warrant our intervention? It is
exactly the kind of thing we are looking at. The reason we cannot
jump to a conclusion about this is precisely for the fact that
many other companies in a competitive market are offering a variety
of terms, some of which include offering only direct debit options.
Others offer very significant differences between the charge if
you have a direct debit or if you do not have a direct debit,
and what we have to do is not say to BT, "You cannot, under
any circumstances, ever adopt practices which are commonplace
in the sector", we have to say, "Are you acting unreasonably?
Are you introducing unfair contract terms? Are you honouring the
terms of the protections for low-income families?" That is
exactly what we are doing at the moment. I do not want to prejudge
the outcome of those discussions on the final two issues, but
that is exactly the territory that we are in, and we are very
concerned about it and we are in the process of looking into it
very carefully.
Q85 Paul Farrelly: In this sort of
review (and I pursue this because it is a huge issue in the banking
industry) you as a regulator can set an example here on the issue.
You as a regulator could, with respect to late payment charges,
take the best legal advice and you may very well conclude that
the general consensus out there in the media is correct that some
of these charges are unfair and illegal penalty charges and, therefore,
on the basis of the law, you could take action to rule them out.
That would set an example for bodies such as the Office of Fair
Trading and other industries where this is also an issue. Is that
an approach that you would consider?
Q86 Peter Luff: Can we have a brief
response?
Mr Richards: We would have to
look at our powers in relation to other organisations, because
you are into unfair contract terms here. You are into general
consumer law as well as our own powers, so I would not want to
give you a definitive answer on the right way forward with us,
because we are into horizontal legislation which affects everybody.
Q87 Peter Luff: I am going to close
this down, but I am going to ask you to keep us very closely involved
with the DTI Committee with this issue, and I think this is an
issue to which we may return at a later date more formally and
in a more structured way than we have this morning.
Lord Currie of Marylebone: Could
we undertake to write to you at an appropriate point in between?
Peter Luff: Yes, please. We have one
or two other quite sensitive issues on the agenda before you need
to leave.
Mr Binley: I think we need a quick answer
from you, quite frankly, because there is a real feeling that
the differential is raking off people who are the most vulnerable
in our society. That is the truth of the matter and we want a
quick answer.
Peter Luff: I am reminded by Mr Farrelly
that the OFT comes within our remit and in fact, of course, we
are conducting an inquiry into the OFT at present, so that is
a very happy reminder from Mr Farrelly. Let us move on to mobile
phones.
Q88 Miss Kirkbride: Another area
that people think is a rip-off is international phone calling
from abroad on which there has been relatively modest profiling,
apart from Vodaphone. I wondered what you propose to do about
that, what you think should be happening and whether you intend
to take action to ensure that it does?
Lord Currie of Marylebone: The
international roaming issue, as I think we discussed when we appeared
last year with you (its successor spoke to you on the issue),
is very much an issue which requires international collaboration
and action. We said at that time that we thought there would be
action. We have, indeed, seen that. Commissioner Reading has proposed
significant steps on international roaming, and that is currently
working through the European policy processes—it is in front
of the European Parliament at the current time—but you see
alongside that quite significant price reductions by several of
the mobile companies, so you have seen the impact of those measures
on prices that consumers actually pay, and I am not sure of the
precise timing at the current time, but I think you would expect
to see action arising out of that process relatively soon.
Q89 Miss Kirkbride: It is taking
its time though, is it not?
Lord Currie of Marylebone: European
policy processes are complex.
Q90 Miss Kirkbride: As and when there
is a pan European playing field on this issue will Ofcom be watching
to see whether these charges are recouped elsewhere? The market
at the moment of up to two pounds for a minute that some of them
charge has been very lucrative and mobile phone companies might
be looking to make up elsewhere. Will you be watching for that
and be ready to act?
Lord Currie of Marylebone: I think
our approach to that would be to say that this is clearly an area
where there is a problem, but, in general, the mobile market is
one that is pretty competitive. There are other issues, like call
termination, where we have also intervened recently, but, in general,
this is a competitive market, so if there is regulatory action
to reduce in international roaming, its competition is likely
to restrict the ability of the mobile companies to recoup that
money elsewhere.
Q91 Miss Kirkbride: I take your point
entirely, but can you explain why it is that they have been so
reluctant on their international phone calls to make them more
competitive, that they have not acted until they have been pushed?
Mr Richards: Why they . . . ?
Q92 Miss Kirkbride: Why has it been
such a rip-off for so long if it is such a competitive industry?
Why have they been able to get away with it?
Mr Richards: I think that is one
of the reasons it did need to be regulated. What you do is ensure
you identify the areas where they are able to exploit their position.
One of those is international roaming, another is call termination.
Q93 Miss Kirkbride: It is a bit of
a cartel?
Mr Richards: No, you would not
describe it in that way. Call termination—
Peter Luff: Can I bring in Brian Binley
to talk about call termination.
Q94 Mr Binley: Thank you very much.
For a regulator you have pulled off a pretty clever trick, in
truth, of getting the mobile operators and their customers incensed
at your actions. The new price cap represents, crudely, a 20%
reduction in mobile call termination charges. You have only got
to look at the European Commission, and they are not the most
forthright body in protecting the well-being, quite frankly, of
the consumer, but they pretty much told you that you were much
too soft in this respect, and they were followed by a number of—.
Do you want me to read it out? I am more than happy to. Please
accept what I tell you as being true. Now, I am back to my real
concern about having to see your role, because it seems to me
we are pussy-footing about and all the time people are getting
away with prices they should not be getting away with. What are
you there to regulate?
Mr Richards: I was shaking my
head because I think the Commission were wrong.
Q95 Mr Binley: I am sure you think
the Commission is wrong?
Mr Richards: Not because I did
not acknowledge what you were saying. The reason that the Commission
contacted us about this, they were concerned about whether we
were taking the right approach to estimating the costs associated
with these networks and, therefore, estimating the call termination
charges properly. When we explained to them how we were doing
it, they have accepted that we were, in fact, doing it the correct
way and, therefore, they have backed off from their position,
so that particular exchange has gone. The thrust of your question
is: are we doing enough to drive prices down in the interests
of consumers or not? We think we are. We think there are very
substantial savings on their way for consumers, as there have
been as a result of the previous settlement. What we have to do
in this area is make a judgment which ensures that, where there
is consumer benefit, we drive towards that consumer benefit, and
that is always what we do. What we also have to do is ensure that
that is based on a robust and real estimation of the true costs
associated with providing that service: because if we push them
down too low too fast, the companies involved will not be able
to make a return and they will no longer want to carry on providing
that service. So we always have to make that judgment. Actually,
in mobile I think you have seen significant price reductions over
a very substantial period, you have more competition as a safeguard
in the UK than I think in almost any other European country and
you will see very rapid innovation and development of new services
in the UK as well. I do not think the picture is too bad and I
think consumers will benefit over the next four years to a very
real extent.
Peter Luff: Adrian Sanders wants to make
a point, and maybe you can wrap up your response to his point.
Q96 Mr Sanders: It was on the issue
of roaming charges. It came up in the news at the weekend. A representative
for the mobile phone industry said something that made me fall
off my chair. He was asked the question: "How do you justify
these charges?", and his answer was, "We need to keep
tariffs high in order to offer other customers discounts."
If somebody offered that explanation before you, how would you
deal with it?
Lord Currie of Marylebone: I think
that is the explanation which reveals exactly why intervention
in this area is appropriate, and that is why the European Commission
has come forward with proposals. I have so say, coming back to
the relationship between price caps and cost, we have some concerns
that some of the proposals coming out of the European Parliament
at the current time for international roaming may, in fact, be
too low. There is a certain danger we may lurch too far in a direction
of two types of cap, which could then have unintended consequences
of a kind that could come back and bite consumers in unfortunate
ways. So we are in dialogue about those questions, but, in general,
the quote you are giving illustrates exactly why intervention
in this area was appropriate.
Mr Richards: It definitely was
necessary for precisely those reasons, and we will make progress.
It always had to be international, which is why it has taken so
long, but I think the initiative that has been taken is good and
right and there will be price changes as a result. We would like
them to be sooner rather than later, but, as David said, it has
to go through the labyrinthine process of European policy-making,
and it is stuck there at the moment.
Q97 Peter Luff: We are beginning
to run out of time. I am conscious of that. Just a couple of things
before we let you go. One thing briefly though on mobile number
porting. Port rates in the UK are very low indeed, and we started
the whole business. I am told it takes five days, on average,
to port a mobile number in the UK. In Ireland you can do it in
20 minutes. I must not make any comments, they might be taken
to be racist in their tone, but 20 minutes in Ireland and five
days in the UK is not very impressive, is it? Are you going to
do something about that?
Mr Richards: Yes, that number
has to come down, there is no question about that, and we will
be publishing a statement on that issue in the next few weeks.
That number has to come down, it is too high, it is not in the
consumer interest, and I think there is clear evidence from other
countries and, indeed, from our own research that consumers would
like a swifter—
Q98 Peter Luff: I am told practical
lead times in Australia are two hours, Austria two hours, Denmark
24, Hong Kong two, Ireland 20 minutes, Italy managers three and
a half hours and we manage five days.
Mr Richards: The number is coming
down. I think some of those numbers are the best case examples,
just for clarity.
Q99 Peter Luff: No, they come from
three.
Mr Richards: They have come from
three. I am very surprised.
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