Ofcom's Consumer Policy

Executive summary

Executive summary

1.1 Under section 3(1) of the Communications Act 2003 (the ‘Act’), it is Ofcom’s principal duty, in carrying out its functions:

• To further the interests of citizens in relation to communications matters: and
• To further the interests of consumers in relevant markets, where appropriate by promoting competition.’

1.2 The purpose of this Consultation Document is to:

• set out Ofcom’s approach to the promotion of consumer interests; and
• elicit stakeholder views on a number of issues and options related to consumer policy.

1.3 This Consultation also addresses a number of issues arising from the Telecoms Strategic Review (TSR), relating to consumer information and switching, and puts forward proposals for future regulatory action. Overall, this Consultation aims to identify the objectives and priorities that should drive Ofcom’s consumer policy over the next two to three years.

Scope

1.4 This Consultation sets out Ofcom’s approach to consumer policy, except in relation to broadcast content and operational aspects of spectrum management. Our approach to consumer issues relating to TV and radio content is considered in the Public Service Broadcasting Review and the Radio Review, which can be found on Ofcom’s website ^(-1-).

Consumer and citizen interests

1.5 In Ofcom’s view, there is a close relationship between consumer and citizen interests. This is partly because each of us acts as both a citizen and a consumer, and partly because our interests under these headings frequently overlap. A distinction between consumer and citizen interests can nevertheless be drawn as follows:

1.6 Consumer interests arise following the establishment of a market, in which individual consumers make decisions about the acquisition and/or use of goods and services, which are provided by suppliers. The establishment of a market creates options for consumers, about whether to purchase or use particular goods and services, and if so in what quantity or with what frequency. The relationship between consumer and supplier is typically a direct commercial one, but may not be. For example, the relationship between a consumer and a supplier of premium rate services can very often be indirect, with revenues typically being channelled through several intermediaries to the service provider.

1.7 As citizens, on the other hand, we have a shared, collective interest in a range of issues which are beyond the market, but which also have a major influence on our lives. Within the communications sector, examples include our interest in the universal availability of basic communications services, and in access to a diversity of opinions about news and current affairs. Issues such as these affect us collectively, rather than purely through a market mechanism as individuals.

1.8 Given this distinction, our interests as consumers may at times conflict with our interests as citizens, for example our private consumer interest in driving cars may conflict with our interest as citizens in tackling global warming. In other cases, it may be difficult to disentangle each person's identity of interest as a citizen or a consumer. Policies such as Universal Service Obligations in telecommunications and Public Service Broadcasting, for example, speak directly to the rights and benefits of citizenship but also involve impacts upon markets, which have implications for the consumer. The two sets of interests are in practice closely intertwined.

Objectives of Consumer Policy

1.9 Ofcom considers that the overall objective of its consumer policy should be, within the confines of its statutory duties, functions and requirements:

To work together with other organisations and industry to ensure that consumers benefit from increasingly competitive communications markets, are effectively protected from financial and physical harm, unreasonable annoyance and anxiety, and have the information and tools necessary to make informed choices.

1.10 The objective should be to create an environment in which:

• Consumer interests are fully and consistently taken into account in the development and evaluation of policy, supported by appropriate evidence on the state of consumer opinion;
• Consumers have access to clear advice on their rights, and to effective complaints handling procedures and redress;
• Regulatory obligations on suppliers provide an adequate level of consumer protection, without imposing an undue burden whilst being objectively justifiable, not unduly discriminatory, proportionate and transparent;
• Compliance monitoring and enforcement are fair, consistent, effective and proportionate;
• Consumers are equipped with the information, skills and confidence needed to obtain to obtain a good deal; and
• Due consideration is given to the needs of vulnerable consumers, to ensure that they are not disadvantaged by the operation of the market.

1.11 In relation to vulnerable consumers, Ofcom recognises that each of us may be vulnerable to harmful supplier behaviour at some time or other. However, Ofcom considers that, where there is evidence that a particular group of consumers – such as children, older people, disabled people, or those on low incomes - is systematically more likely to be vulnerable to harm than others, this should be taken into account in the formulation and implementation of consumer policy. That is to say, it may be appropriate to give greater weight to the interests of such vulnerable groups when determining the course of regulatory action.

1.12 Ofcom invites stakeholders to comment on this objective and the desired outcomes listed above.

1.13 Given these objectives, Ofcom considers that its approach to furthering consumer interests has three elements:

• integration with competition policy: ensuring that competition policy takes sufficient account of consumer interests and behaviour;
• consumer protection: protecting consumers against financial and physical harm, unreasonable annoyance and anxiety; and
• consumer empowerment: equipping consumers to obtain the best deal they can.

1.14 Ofcom proposes to publish an annual review of consumer interests in the consumer and business market, which would pull together evidence from a variety of sources on how well the consumer is being served in communications markets.

Integration with competition policy

1.15 A central plank of Ofcom’s approach to consumer policy is that consumer interests can in general best be served by promoting effective competition in the provision of communications services. This is consistent with Ofcom’s obligation under the Act to further the interests of consumers “where appropriate by promoting competition”.

1.16 However, consumer preferences and priorities can vary significantly, between different individuals or groups, between markets and over time. Ofcom therefore considers it essential, when developing competition policy, to take account of empirical evidence on consumer preferences and priorities in the markets concerned. This is already one of the main drivers of Ofcom’s market research programme. Looking ahead, Ofcom believes the priorities in this area should be:

• to improve the level of coordination and communication between Ofcom and consumer organisations such as Consumer Direct, the National Consumer Council ( NCC) and Which?, through regular meetings and the open exchange of information. This will help to ensure that Ofcom takes full account of the evidence available to these organisations, and to the insights they can provide.
• to improve Ofcom’s internal processes and procedures, to ensure that explicit account is taken of the relevant consumer interests when carrying out competition policy projects. This work will build on the findings and recommendations of a report which has recently been published by the Ofcom Consumer Panel ^(-2-).

1.17 Stakeholders are invited to comment on these proposals.

Consumer protection

1.18 Consumer protection is particularly challenging in the communications sector, because modern communications systems provide ineffective or dishonest providers with easy and efficient access to consumers, and because new technologies can give rise to new forms of harm. Though desirable in other respects, the growth of competition can also contribute to consumer protection problems, as it can lead to a rise in unfair selling practices and may be associated with an increase in “hit and run” behaviour by dishonest providers.

1.19 In recent years, consumers have been affected by a range of issues, including for instance rogue internet diallers, silent calls, mis-selling, and misleading advertising. In response to these problems, Ofcom has adopted an increasingly vigorous approach to consumer protection, involving the active enforcement of existing regulations and the implementation of measures to tackle new issues as they emerge. The actions which have been taken include the following:

• introducing tough new rules to combat mis-selling and slamming: following a consultation process, new rules have recently been introduced requiring all providers of fixed line telecommunications services to residential customers and SMEs to establish sales and marketing codes of practice, which are consistent with guidelines published by Ofcom. These codes of practice are designed to ensure that consumers are protected against undesirable sales and marketing techniques, including slamming. Ofcom has been actively monitoring compliance with this obligation and a number of enforcement actions are currently underway.
• reducing the potential for silent calls and the distress they cause to consumers: having had some limited success with voluntary measures, Ofcom used its powers under the “persistent misuse” provisions of Communications Act to investigate seven companies involved in generating silent calls. The investigation led to notifications being issued to four companies and written undertakings being provided by one company. Another company stopped accepting contracts to send unsolicited fax communications.
• improving the effectiveness of PRS regulation: following a growth in consumer concerns over PRS scams, and particularly those involving rogue internet diallers, Ofcom carried out a review of PRS regulation, the results of which were published in December 2004. Since then, Ofcom has been working closely with ICSTIS and the DTI to implement the recommendations which emerged from the review, and this has enhanced ICSTIS’s ability to take effective action against those involved in PRS scams.

1.20 Ofcom has also been actively engaged in the development of new policies designed to address consumer issues in a rapidly changing market. Initiatives of this kind include the following:

• a policy document is due to be published in the near future, setting out proposals to deal with consumer protection issues associated with the growth of VOIP services. These concern, in particular, access to emergency services;
• as part of an overall review of numbering policy, Ofcom will be consulting shortly on the possibility of introducing a public interest test when allocating numbers to communication providers. The purpose of such a test would be to enable Ofcom, in certain circumstances, to refuse applications for new number blocks from providers who had previously breached consumer protection regulations;
• as part of its current number translation services (NTS) policy review, Ofcom is consulting on a range of proposals designed to improve consumer protection in relation to calls made to 08 numbers ^(-3-). The proposed measures include restricting adult services to designated 09 number ranges and the extension of ICSTIS’s remit to include calls made to 0871 numbers;
• Ofcom is currently consulting on a proposal to extend the definition of controlled premium rate services, to include internet dialler software, irrespective of the call cost or the number on which it is provided ^(-4-). The purpose of this proposal is to enable ICSTIS to take action against rogue internet diallers using numbers outside the 09 number range;
• Ofcom is currently consulting on proposals to update and improve the Ofcom Metering and Billing Approval Scheme ^(-5-), which is aimed at protecting consumers by ensuring the accuracy of the bills they receive from providers; and
• Ofcom will be consulting shortly on options for improving the processes involved in migrating between different providers of telecommunications services, with a view to ensuring that consumers do not face inefficient or unnecessary migration costs.

1.21 Looking ahead, Ofcom believes that the aim should be to establish a consumer protection regime based on four key elements:

• Well-designed rights and regulations – that will give consumers an appropriate level of protection without imposing an undue burden on suppliers;
• access to information about rights and risks – consumers should have ready access to information about their rights and about the risks they face e.g. from a new type of scam, so that they can take action to protect their own interests;
• effective complaints handling processes, operated by providers and others, and including provisions for awarding redress – consumers should have confidence that if a problem does arise, it will be properly dealt with, and that they can secure redress where appropriate; and
• active monitoring and enforcement – to ensure that providers comply with the regulations and that, when they fail to do so, appropriate penalties are imposed.

1.22 Based partly on a number of case studies Ofcom has reviewed the existing framework against the consumer policy objectives proposed above and its view of the key elements of an effective consumer protection regime. In the light of that review, Ofcom believes that its priorities should be as follows:

• Raising awareness of consumer rights, and helping consumers to protect themselves against harm: it is currently difficult for consumers to obtain complete and accurate information about their rights. In addition, there is little early warning of scams. If consumers were made more aware of scams, they would be better placed to protect themselves against the harm that these scams can cause, and this in turn could act as a deterrent to potential rogue traders.
• Improving the effectiveness of complaints handling procedures: most telecommunications providers are required to publish a complaints code of practice that has been approved by Ofcom, and to provide access to an alternative dispute resolution (ADR) service. Ofcom’s recent review of the ADR schemes ^(-6-) identified several shortcomings in the overall complaints handling process, and made a number of recommendations for improvement. Given the central role of this process in the protection of consumer interests, Ofcom considers that priority should be attached to the implementation of best practice in this area.
• Targeting regulation more directly at offenders, and lightening the load on compliant service providers: for example, most communications providers are currently required to develop and comply with codes of practice, approved by Ofcom, which govern their dealings with their customers. There may be some scope for reducing the administrative burden associated with these codes, which can fall more heavily on compliant than on non-compliant firms.
• Reducing the lead time involved in identifying new problems and taking enforcement action against offenders: recent experience shows that for a variety of reasons, it can take up to 18 months, or even longer, from the emergence of a new consumer protection problem to the implementation of effective remedies. Ofcom would like to see this lead time significantly reduced.
• Improving the effectiveness of self and co-regulation: the case studies on mis-selling and silent calls show the limitations of a self-regulatory approach, when there is insufficient incentive for providers to comply with self-regulation.

1.23 In order to further these priorities, Ofcom proposes:

• To develop an Early Warning System: The purpose of this system would be to identify problems at an earlier stage in their development: Ofcom would seek to do this by working with other agencies involved in dealing with complaints, and by sharing information on a regular basis. This system would be used to inform policy initiatives and would feed into the proposed initiative on scam alerts.
• To include in the Consumer Advice section on Ofcom’s website advice on consumer rights, scam alerts and an up to date overview of ‘hot topics’ from Ofcom’s Contact Centre. The Consumer Advice section on the website will be discussed in more detail under the empowerment proposals (1.26) and in section 5. As well as being available on the Ofcom website, scam alerts will be pushed automatically to recipients through an e-mail update registration system. Ofcom also proposes to revamp its Competition Bulletin to make it more easily readable and useful for journalists, and therefore more accessible to consumers;
• To implement the recommendations of the recent review of ADR schemes and consider the scope for further improvement in complaints handling procedures: The recent Ofcom review made a number of specific proposals in respect of the ADR services provided by CISAS and Otelo (the ‘Schemes’), and the complaints handling procedures of the providers themselves. In addition, Ofcom will continue to work together with the Schemes, industry and consumer interests on the scope for further enhancing the effectiveness of the overall complaints handling process. To support this initiative, Ofcom will continue to monitor the available research and will undertake further research where appropriate;
• To undertake a review of self and co-regulation: The main aim of this review would be to assess the circumstances in which self and co-regulation likely to be effective. It would focus in particular on the incentives for individual suppliers to comply with self-regulation and the scope for targeting regulation to minimise the burden on compliant firms;
• To undertake a detailed review of consumer related General Conditions: This review would consider the extent to which the General Conditions could be targeted more effectively at offenders and the burden on compliant service providers could be reduced. It would also examine the scope for increasing the flexibility of the Conditions, so that there would less need to amend them as new problems emerge; and
• To develop streamlined processes for the enforcement of consumer regulations: In Ofcom’s view, the standard procedures for the investigation of competition related complaints, which typically take 6 months, are often too slow to for the effective enforcement of regulations designed to protect consumers from harm. With this in mind, Ofcom has recently started to streamline procedures to deal with complaints referred to it by ICSTIS, resulting in a significant reduction in the time it takes Ofcom to investigate referred complaints. It proposes to extend this approach to consumer-related referrals from other self or co-regulatory agencies, such as Otelo and CISAS and to consumer complaints which have come directly to Ofcom.

1.24 Stakeholder views are invited on these proposals.

Consumer Empowerment

1.25 Ofcom believes that consumer interests can in general best be furthered through the promotion of active and effective competition between service providers. In isolation, however, this may not be enough. Consumers also need to be empowered to get the best possible outcome from their dealings in the market, and to secure the benefits of competition. To this end, consumers need to have the confidence, information and understanding required to enable them to make rational, informed choices.

1.26 Ofcom does not consider it has a primary role in improving information flows between providers and consumers – this is generally best left to the market. We recognise that in some cases, the market may not deliver to consumers the information they want. However where the evidence suggests that this has resulted in consumer harm, or is likely to do so in the future, there may be a case for regulatory intervention. In these cases, Ofcom will first consider the scope for a self-regulatory or co-regulatory initiative, or for an initiative that would involve the provision of information by a third party. In exceptional cases, and in the absence of any other source, Ofcom may provide information about providers or their products and services itself.

1.27 Consistent with this approach, Ofcom will during 2006 continue to develop the Consumer Advice section of its website. This section will provide advice on communications services, protection related issues and signposting to other relevant organisations where appropriate. It will be designed to improve the ease with which consumers can obtain information on different aspects of communications services (where to find price and quality of service information, how to decide between different offers and suppliers) and to enhance consumers’ ability to deal with new problems as they arise.

1.28 Views are invited on Ofcom’s overall approach on consumer information.

1.29 Where consumers have too little information, or too much information of inconsistent quality, various types of harm of detriment can arise, including the following:

Consumers may not participate in the market at all, because they have limited awareness of the products and services on offer, or conversely because they are confused by the available information;

• Consumers may pay too much;
• Consumers may buy the wrong product or service; and
• Consumers may be disappointed with the product or service, because it turns out to lack the expected level of quality.

1.30 In order to avoid such harm, empowered consumers need to have:

• awareness of alternative suppliers and services;
• access to comparative information on the features, prices and quality of the available services; and
• awareness of the scope they have to switch suppliers and easy access to information on the processes involved in doing so.

Awareness of providers and services

1.31 Market research suggests that in general, the majority of consumers are aware of alternative providers of communications services. In those areas where knowledge and understanding is lower – notably in relation to fixed line telephone calls – we believe growing competition will lead naturally to an increased awareness of alternative providers. We do not consider there is a strong case for regulatory intervention in this area.

1.32 The research also indicates that consumers are generally aware of new services and technologies, although levels of awareness are in some cases markedly lower amongst older consumers. The Ofcom Consumer Panel is carrying out research in order to gain a better understanding of the awareness levels of older consumers. The results of this research will be externally available in Q2 2006.

Access to comparative information

Price information

1.33 Ofcom has an obligation under Article 21(2) of the Universal Service Directive to encourage the provision of information to enable end-users, as far as appropriate, to make an independent evaluation of the cost of alternative usage patterns. This provision is reflected in General Condition 10.1 which among other things requires providers to publish clear and up to date information on prices and tariffs.

1.34 Ofcom currently operates the ‘Ofcom PASS’ accreditation scheme for third party services, which compare the prices of different providers and supply impartial and accurate information. At present, one provider – uSwitch - has secured accreditation for its fixed line price comparisons, which cover around 30 providers. The site also provides information about quality of service indicators such as levels of customer care and the availability of online billing. It accommodates the needs of visually or hearing impaired consumers and offers a comparison service by phone for those without access to the internet.

1.35 Our research shows that personal contacts such as friends and family remain the most popular source of information for those considering a change of supplier. Around a fifth of consumers across markets say they would turn to the internet for trusted information, and we would expect this proportion to rise as internet penetration increases in the future. However, awareness of the PASS scheme amongst residential consumers remains low, standing at 8% in November 2003.

1.36 Ofcom recognises that markets have changed significantly since the PASS scheme was introduced and the relevant research was carried out. We therefore consider it timely to conduct a full review of the PASS scheme. As part of this review Ofcom would undertake further research into consumers’ usage and knowledge of price comparison services.

1.37 Our research also shows that while those without Internet access – frequently older and low income consumers - are less likely to look for information at all, providing price information solely via websites will risk excluding relatively large – and vulnerable groups of consumers.

1.38 In the light of these developments, Ofcom has identified four possible options for the PASS scheme, on which stakeholders are invited to express their views:

• Option 1 - Withdrawal of the PASS scheme: Consideration could be given to withdrawal of the scheme on the grounds that it is either (i) ineffective, as evidenced by the low level of consumer awareness, or (ii) no longer necessary, because of the growth in the number of unaccredited sources of comparative price information.
• Option 2 – Maintain the scheme as it stands: Under the status quo option, the number of accredited information providers might grow over time, but the strict criteria required for accreditation would be retained.
• Option 3 – Retain, review and re-launch the scheme: Under this option, Ofcom would review and re-launch the PASS scheme with a view to raising consumer awareness of the scheme and improving its overall effectiveness. This would provide an opportunity to re-evaluate the content of the PASS Code, three years after its inception, to ensure the standards required for accreditation reflect developments in the marketplace (for example, the increase in mobile and fixed service providers) and to encourage extension of the scheme to other communications services (for example broadband and mobile).
• Option 4 – Establish closer links with a single price comparison provider: Under this option, Ofcom would establish closer links with a single price comparison provider, for example by providing information on or via the Ofcom website but outsourcing the work to a third party. This would provide a greater opportunity for Ofcom to concentrate its efforts on promoting a single source of information, with the potential for this to include mobile, fixed, broadband, and digital television comparisons. However, it would be necessary to address accessibility for those consumers without internet access who are less likely to look for information. This would be a relatively costly solution for Ofcom to pursue without the commercial revenue models used by some existing price comparison services. There may also be competition concerns about the way the third party provider is chosen and funded by Ofcom.

1.39 Whichever of the above options is selected, Ofcom could also consider commissioning an independent annual report setting out comparative price information, and aimed at those consumers who are considering a change of provider.

Quality of Service

1.40 Ofcom’s research (the details of which are included in Annexes 5 and 6) shows that there is stated demand from both residential consumers and SMEs for quality of service (QoS) information. Service quality is consistently mentioned by consumers as the second most important driver of switching, after price. Evidence from the Ofcom Contact Centre shows that a significant number of consumers complain about the service levels they receive from their providers. And we anticipate that quality of service will be a significant issue in the transition to next generation networks. It will therefore be important that this area is carefully monitored.

1.41 In line with our regulatory principles, Ofcom has encouraged the market to provide information on QoS indicators through an industry-led approach in which network operators and service providers define and manage the scheme and collectively publish indicators for use by consumers. Our aim is to ensure that information supplied to consumers is objective, reliable, timely and up-to-date.

1.42 We are currently pursuing two QoS initiatives – fixed voice and mobile voice. Ofcom has issued a Direction requiring certain fixed voice service providers to publish objective and comparable QoS indicators. The mobile providers, although not directed to do so, have agreed to self-provide independent, comparable quality of service information. Both the fixed and mobile initiatives are wholly financed by industry with Ofcom acting as a facilitator.

1.43 The first results of both the fixed and mobile QoS information are scheduled for publication in July 2006. User testing on the accessibility and user-friendliness of the two websites will be an integral part of the development of this service. Both sites will have a user feedback facility.

1.44 In order to provide the maximum benefit to consumers, the QoS information needs to keep pace with changing technological developments. Ofcom intends to undertake reviews of both schemes by the end of 2006, following publication of the first set of results. The reviews will be based on end-user feedback (including the usefulness of the chosen indicators), levels of use (segmented by consumer group where possible) and levels of participation in the scheme. In the case of fixed providers, this may include enforcement action where service providers covered by the Direction are not participating and are therefore in breach.

Awareness of switching processes

1.45 Empowered consumers also need to be aware of the scope they have to switch providers, and to have easy access to information on the processes involved in doing so.

1.46 Research indicates that switching activity in telecoms is primarily driven by a minority of technology-orientated consumers. M ost consumers - between 60%-70% depending on the market, have never tried to calculate the potential savings from switching, have not switched and are happy with their fixed rental and calls provider. This proportion is slightly lower for broadband (50%) and mobile (45%). These consumers can be characterised as happy but ‘uninvolved’.

1.47 One reason why such a large proportion of consumers are ‘uninvolved’ may be the perceived level of savings available. Research findings suggest that the level of perceived savings is generally lower than the amounts that would make consumers switch. There is also increased uncertainty amongst non-switchers regarding how easy the process would be. Ofcom is currently conducting research which is aimed at providing a better understanding of consumer behaviour in relation to purchasing decisions, and the reasons behind the lack of consumer involvement.

1.48 A minority of consumers – between 11% and 15% depending on the market – said they had not switched because they were prevented from doing so. A proportion of this group said this was for reasons that might be addressed through the provision of additional information e.g. because they don’t know where to find information. However, these consumers tend not to be members of ‘vulnerable’ groups. Instead, they are generally younger, of social grade B and more likely to be male and living in single person households. Ofcom does not consider that an initiative targeted at this consumer group would be warranted as these categories of consumer tend to have relatively good access to information, for example through the internet.

Further research on uninvolved consumers and decision making behaviour

1.49 Ofcom continues to have concerns over the position of uninvolved consumers who do not express dissatisfaction with their situation but who nevertheless may be disadvantaged in terms of their ability to participate in the market. As discussed in the Telecoms Review Statement, uninvolved consumers tend to be:

• older – aged 65 and above;
• on lower incomes; and
• less likely to have internet access at home.

1.50 These consumers also tend to have a lower than average understanding of new technology terms, a lower than average awareness of alternative suppliers and limited knowledge of their consumer rights.

1.51 Whilst these consumers are an obvious target for an initiative designed to raise awareness, research findings indicate a high risk of such an initiative being unsuccessful. This group mainly keeps informed through friends and family and, given that these consumers describe themselves as ‘happy’ with their existing providers, the supply of additional information might have little effect.

1.52 As mentioned above, in order to gain more insight into the decision making process of different consumer groups when buying communications services and switching supplier, Ofcom proposes to carry out further research, including both ‘uninvolved’ consumers and those that have switched or are in the process of switching supplier. This will be conducted in close cooperation with the Ofcom Consumer Panel.

Footnotes:

1.- http://www.ofcom.org.uk/tv/psb_review/, http://www.ofcom.org.uk/consult/condocs/radio_review/radio_review2/

2.- “Capturing the consumer interest – a toolkit for regulators and government”, published by the OCP on 2 February 2006.

3.-Number Translation Services: A Way Forward, published on September 28, 2005.

4.- Conditions regulating Premium Rate Services, published on November 21, 2005.

5.- Review of the Ofcom Metering and Billing approval scheme, published on November 24, 2005.

6.- See “Alternative Dispute Resolution: Recommendations for best practice”, an Ofcom Statement published on December 13, 2005.

7.- See Consumer representation in regulated industries, a report by the Department of Trade and Industry and HM Treasury, July 2004, page 35, and Modern markets; Confident consumers, http://www.dti.gov.uk/consumer/whitepaper/overview.htm

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