Ofcom: price war benefiting consumers


The networks have reacted to slow revenue growth and high acquisition costs by introducing longer-term contracts and pursuing aggressive direct sales strategies. The first three months of 2007 saw 79 per cent of new customers sign contracts of 18 months or longer.

Ofcom said: “Twelve-month contracts are still available, but the migration to longer contracts reflects the value offered to customers willing to commit for longer. Networks can pass on the benefits of lower acquisition costs.

“One consequence is the greater usage levels associated with lower prices, and the higher levels of inclusive voice and messaging. A second is likely to be reduced churn, and a third a longer handset replacement cycle.”

As well as taking increased sales direct, Ofcom noted networks were offering better value via direct sales than third parties.

“Operators have made some tariffs available only through their own channels; for example, in July 2007, T-Mobile promoted free handsets with free cross-network calls ‘only when you buy direct from us’. Similarly, all operators have focused on their own internet sales; for example, Orange’s web-exclusive offer in July 2007 offered free Orange-to-Orange texts on its
Speak Easy tariff,” said Ofcom.

Growth of network revenues across the telecoms industry, up just 1.4 per cent last year on 2005, have slowed compared with the previous five years. Fixed line revenues declined and mobile revenues stuttered, said the report.

At the end of 2006 there were nearly 70 million active UK mobile subscribers, 35 per cent on contract. The number of mobile customers is
now more than double the number of fixed line customers in the UK.

3G penetration jumped 70 per cent on 2005 to 7.8 million. Ovum principal analyst for regulation Stefano Nicoletti said: “The UK penetration of 3G is poor, considering it has been commercially available for more than five years.”

Ofcom said UK mobile usage had increased, but household spending on mobile has dipped as networks have slashed prices for bundled propositions and exited expensive third party distribution. There were greater cost savings in mobile, on average 13 per cent on 2005, than any other telecoms sector.

Mformation vice president Matt Bancroft said: “Household spending on mobile has fallen slightly, but the reliance on mobile phones is increasing. More and more people are using the mobile internet and 3G handsets.”

The research found UK subscribers spend four minutes per day on average on their mobile, up 58 per cent on 2005. More UK households rely just on a mobile (nine per cent) than rely just on a landline (seven per cent). Total mobile call minutes in 2006 accounted for more than one third of total UK call minutes (234 billion).

Ofcom also found 41 per cent of mobile users regularly use camera functions, with 13 per cent internet access, 10 per cent the radio, and 21
per cent regularly play games. In 2006, UK mobile users sent 20 per cent more texts than the previous year, with an average of 12 per week.

Meanwhile, BT’s share of fixed voice traffic is below 50 per cent for the first time and, with a significant increase in local loop unbundling, broadband is now in 50 per cent of UK homes.