Review of the Universal Service Obligation - Statement
Published 14 March 2006
1.1 Universal Service ensures that basic fixed line services are available at an affordable price to all citizen and customers across the UK.
1.2 The scope of the Universal Service Obligations (‘USO’) is defined by the EC Universal Services Directive (‘USD’). The Secretary of State for Trade and Industry specifies the services which must be provided throughout the UK in the Universal Service Order (‘the Order’). The Order has been implemented by Ofcom through specific conditions on the Universal Service Providers (‘USPs’), BT and Kingston Communications. USO services include: special tariff schemes for low income customers; a connection to the fixed network, which includes functional internet access; reasonable geographic access to public call boxes; and the provision of a text relay service for customers with hearing impairment.
1.3 Ofcom has reviewed USO to:
- ensure that the obligations continue to meet the needs of consumers as demands and technology change;
- find the right balance between the needs of vulnerable customers and changing commercial conditions; and
- make sure the benefits of measures reach those who need them by targeting and creating incentives.
1.4 This is the third document Ofcom has published during the review. In a consultation document on 10 January 2005 (‘the January consultation’), Ofcom examined the current operation of USO and made a series of proposals for change. In a statement and further consultation published on 30 June 2005 (‘the June statement’), we set out our conclusions and asked for comments on proposals for legal changes to implement those conclusions. We received 50 responses to that document. We intended to complete the review by the end of 2005 but have been delayed by the need to consider legal issues arising from a dispute raised by providers against BT’s increase of the connection charge to BT’s Text Direct service. This statement now sets out our conclusions.
1.5 As USPs, BT and Kingston have to ensure that customers can afford telephone service. This is achieved through special tariff schemes aimed at customers on low incomes. BT’s existing schemes – Light User Scheme (LUS) and InContact - use a proxy of low use in order to attract low income customers and around 60% of users are from low-income households. Ofcom consulted on BT proposals for an alternative scheme targeted more directly at those on low incomes. In the June statement Ofcom set out a revised targeted scheme proposed by BT modified to reflect concerns raised in responses to the consultation. The changes included a discount for early payment and an increased allowance of free calls included with the line rental.
1.6 Ofcom’s view was that the scheme represented a viable replacement for the existing schemes. To protect customers on the existing schemes, Ofcom indicated that the existing schemes will not be withdrawn until 600 000 customers are using the new scheme.
1.7 Since the June statement the eligibility criteria for the scheme have been broadened to address the concerns raised in responses. The scheme will be available for customers in receipt of Income Support, income-based Job Seekers Allowance and Pension Credit.
1.8 Disconnections policy is another indicator of affordability. BT has recently reviewed its credit management procedures and increased its marketing of schemes such as prepay to help customers with payment difficulties. This appears to be assisting customers and disconnection levels are beginning to fall.
Public Call Boxes
1.9 Public Call Boxes (PCBs) provide a service that is valued and needed by many people without a phone or those away from home, who cannot, for whatever reason, use their mobile. Many disadvantaged and vulnerable consumers still rely on PCBs.
1.10 BT and Kingston are each required to ensure adequate coverage of PCBs. Ofcom considers that adequate coverage is best determined at a local level. The last PCB cannot currently be removed from a site if a local council objects – ‘the local veto’. As revenues have fallen, BT has argued that the local veto is unduly restrictive. In the June statement Ofcom concluded that the local veto should remain but be restricted to one council in each area with other local public bodies continuing to be consulted. The bodies with the veto will be the unitary, district, metropolitan or equivalent councils. This represents a change from the June statement where Ofcom proposed that in two-tier authorities county councils should hold the veto; in the light of responses Ofcom has concluded that the veto should be held by district councils in these areas.
1.11 As set out in the June statement the consultation period for proposed removals will be extended from 42 to 90 days to make the process more transparent and consistent. Ofcom is issuing consultation guidance and changing the definition of a ‘site’ - this determines which PCBs are subject to the local veto – from 100 to 400 metres. There will also be greater freedom for BT and Kingston to use cashless PCBs.
1.12 Ofcom is publishing a leaflet for stakeholders on the rules around PCB removals which will be distributed following this statement.
Services for customers with disabilities
1.13 A key service for customers with disabilities is text relay. However, it needs to evolve as demand and technology changes. As set out in the June statement Ofcom has concluded that a Stakeholder Advisory Panel for the relay service should be established and an annual plan and report on the operation of the service published. These changes will improve transparency and accountability. A study into a video relay and captioned telephony service is being carried out for Ofcom by City University
1.14 Ofcom is also proposing that other changes to requirements on providers in respect of services for disabled customers should be made. These include extending the scope of customers who can receive bills and contracts in special formats and increasing some accessibility requirements for PCBs. These changes will require changes to the relevant conditions. Ofcom will propose these changes in a separate consultation document shortly. This document will also address legal issues arising from the dispute raised by providers against BT’s increase of the connection charge to BT’s Text Direct service.
Provision of connection at speeds that permit functional internet access
1.15 BT and Kingston are required to provide a connection upon reasonable request and at uniform prices, irrespective of geographical location. This requirement is particularly valuable to customers in remote rural areas whom the market might otherwise not serve. Where installation of a new line costs £3,400 or less, BT sets a standard charge. Where installation will cost over £3,400, BT requires the customer to pay the excess costs (plus its standard connection charge). Ofcom has concluded that it would be clearly justified for BT not to charge uniform prices. Ofcom is therefore consenting to BT charging non-uniform prices above £3,400 and publishing guidance which, amongst other things, will suggest BT applies the standard charge when costs exceed £3,400 for particularly vulnerable customers.
1.16 The obligation on BT and Kingston to provide a connection upon reasonable request encompasses the provision of a narrowband connection capable of ‘functional internet access’ FIA. Guidelines on FIA were issued in 2003 which said that users should be able to expect connection speeds of at least 28.8 kbit/s. It also set out measures that universal service providers should take in response to complaints about data speeds. The Guidelines have been beneficial and Ofcom has concluded that no significant changes are needed at this time. In particular, the benchmark minimum speed will remain at 28.8 kbit/s.
Costs and benefits of providing USO
1.17 USO is currently funded by BT and Kingston as the obligations have not been considered to represent an unfair burden on them. In the consultation document Ofcom updated estimates of the costs and benefits to BT of providing USO. These suggested that since 2001 the costs of serving uneconomic customers have fallen significantly while the costs of providing uneconomic payphones has risen sharply by a similar amount. Benefits from providing universal services arise primarily from brand image and advertising on PCBs. Ofcom estimated that the benefits have remained broadly stable. We estimated the current costs of USO for BT are around £57-74m and the benefits are around £59-64m. Ofcom has concluded that these estimates are reasonable and believes that there is unlikely to be an undue financial burden currently on BT as a result of USO. However, Ofcom intends to carry out a cost benefit analysis of the provision of USO beginning in 2007 once the changes to the obligation set out in this document have been introduced.
1.18 The USO review is focussed on the next two to five years and was carried out alongside the Strategic Review of Telecoms (‘Telecoms Review’) which looked at longer term Universal Service issues. The Telecoms Review‘s conclusions on USO were set out by Ofcom in September 2005. The Telecoms Review emphasised the importance of USO as a ‘safety net’ for vulnerable consumers but noted that the mechanisms for funding, for example a Universal Service fund, and provision of universal service may need to change if and when the provision of USO becomes an unfair burden. It may also be appropriate to alter the overall scope of USO. Though Ofcom does not believe that there is a case for proposing that universal services be extended to include broadband at this point, the Telecoms Review considered how the scope of USO might evolve over time.
1.19 In addition the European Commission is currently reviewing the framework of telecommunications directives. This review includes the USD. Ofcom, with the Department of Trade and Industry, is providing input to that review. The conclusions will be significant for the future evolution of the USO and will provide the background for Ofcom’s next review of the obligation.
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Public Call Boxes: Direction (17 kB)
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