A trio of telecoms firms have been accused of overcharging hundreds of thousands of landline-only customers by almost £200m, according to research.
Economists at Fideres argue that almost 600,000 UK landline-only customers have been charged “excessive” prices since 2009.
The economic consultancy’s analysis claims that TalkTalk, Virgin Media and SSE collectively overcharged consumers £199m when comparing their prices with rivals.
Fideres argues that there has been an abuse of pricing by landline providers that could breach competition rules and, indirectly, equality laws because two-thirds of customers with landline-only deals are 65 or older.
The consultancy, which has conducted investigations into issues including customer compensation for raw sewage spillage, Covid test kit pricing and cryptocurrency scams, has notified Ofcom about what it believes is a potential breach of competition law and has called on the regulator to take action.
In 2017, Ofcom published research showing that landline customers were getting “poor value for money”, with providers increasing line rental charges by 25% and 49% (adjusted for inflation) since 2009 – even though the underlying wholesale cost of providing a landline service had fallen by 26%.
The scathing research resulted in BT, which accounts for about 80% of the 2.9 million UK landline-only customers, voluntarily cutting prices by about 37%, effectively reversing the hikes by returning pricing to 2009 levels in real-terms.
In 2021, BT agreed a further five-year deal to protect pricing as consumer group Collective Action on Landlines (Call) launched a £600m class action suit seeking £500 compensation for each of the company’s 2.3 million landline-only customers.
Ofcom targeted BT because of its significant market power in the landline market – if a voluntary price cutting agreement had not been reached it could have pursued enforced regulatory measures – and did not focus on smaller players such as Virgin Media and TalkTalk.
Ofcom said in 2017 that it expected other providers to follow suit, which the Post Office did, instituting a similar scale price reduction to BT, while at the time Virgin Media launched a “Talk Protected” plan.
However, the research conducted by Fideres claims non-BT landline-only providers have overall maintained prices at about “60% above the fair-rate shown by BT’s reduction”.
Ofcom research has found that three-quarters of older customers have never switched provider, which has discouraged BT’s rivals to match price reductions.
“Normally, a 37% price reduction by a leading firm would force firms providing the same product to lower prices, but here high barriers to substitution and low consumer engagement seem to have allowed providers to maintain high prices without losing customers,” said Chris Pike, managing director at Fideres.
“In other words, TalkTalk and Virgin Media appear to also hold market power over their customers, allowing them to set excessive prices.”
Fideres estimates that, if providers were forced to roll back their prices to match the 2009 level, TalkTalk’s customers would have saved £103m, and Virgin Media and SSE’s customers £48m. TalkTalk acquired SSE’s phone business late last year.
“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,” said Fideres. “Normally, it is difficult to determine what a ‘fair’ market price might be in a monopolised market. But here Ofcom’s finding, and BT’s voluntary price reduction provides a clear benchmark.”
“Of the UK’s landline-only customers, the majority were with BT, and we provisionally concluded that the company had significant market power,” said a spokesperson for Ofcom. “We expected that our proposed cut in BT’s prices would lead to other providers following suit. The Post Office, which held the second largest share of the landline-only market, cut its bills around the time BT did.”
A spokesman for TalkTalk said: “As the UK’s leading value for money connectivity provider, all of our products, including the small portion of the voice-only landline market we serve, offer good value for consumers.”
Virgin Media O2 did not respond to a request for comment.
