Examining the Changing Cost of UK Phone Line Rental and its Future
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- 30-12-15, 04:32 PM #1
Examining the Changing Cost of UK Phone Line Rental and its Future
Examining the Changing Cost of UK Phone Line Rental and its Future - ISPreview UK
Home phone lines aren’t as popular as they once were, with consumers increasingly turning to mobile and VoIP (e.g. Skype) alternatives. At the same time ISPs have been gutting free voice call options from related broadband bundles and yet despite all of this the price of line rental continues to soar.
Like it or not every ISP that uses a fixed line service must cover the cost of the underlying physical line and maintenance in some way, although whether or not this service exclusively carries just broadband or also does a phone and or TV service tends to vary.
For example, BT’s traditional telecoms infrastructure is dominated by old copper lines that can deliver both phone and broadband, while Virgin Media’s cable network has a semi-separate line for phone customers. Elsewhere pure fibre optic (FTTH/P) providers normally only offer broadband, often with the option of a VoIP phone solution that can be delivered over the top.
Over the past few years the cost of traditional home phone lines, which are mostly run over BT’s copper network, has gone up from around £10 inc. VAT per month in early 2007 to nearly £18 at the end of 2015 and at this rate we should reach the £20 per month milestone by around 2017/18, which would equate to a price hike of around 100% in the space of a decade (note: during this period VAT fell from 17.5% to 15% in 2008 and then returned to 17.5% in 2010, before jumping to 20% in 2011).
Just take a look at how things have changed with the line rental charge at BT and TalkTalk as two prominent examples (the table below finds an average annual price increase of around 5%). BT in particular is a prime example because most of the biggest ISPs tend to follow by their lead. Take note that Virgin Media’s semi-separate phone lines also follow a nearly identical trend.
BT Talk Talk 2011 = £13.90 2011 = £13.80 2012 = £14.60 (+5.04%) 2012 = £14.50 (+5.07%) 2013 = £15.45 (+5.82%) 2013 = £15.40 (+6.21%) 2014 = £15.99 (+3.5%) 2014 = £15.95 (+3.57%) 2015 (Dec 2014) = £16.99 (+6.25%) 2015 = £16.70 (+4.7%) 2016 (Sep 2015) = £17.99 (+5.89%) 2016 = £17.70 (+5.98%)
NOTE: Some of the prices may have officially been introduced at the end of the previous year, thus for those we attempt to list the year where the price has been dominant for the longest period of time (e.g. BT raised its cost in Dec 2014 to £16.99, but we list this as 2015 because it was in place for most of that year).
Despite all this the actual underlying wholesale cost of basic line rental has held a fairly stable price point of under £10 per month (Basic BT WLR is currently £89.50 +vat per annum) and indeed if anything the rental has actually fallen in price, albeit only by a little, over the past few years.
On top of that most of the major broadband and phone providers (e.g. TalkTalk, Sky, PlusNet) have been quietly removing their value-added extras from entry-level packages, such as free UK evening and or weekend voices calls (these use to be included as standard by most providers), yet once again the price that consumers pay for line rental has continued to rise and at roughly the same pace as it always did.
In short, most consumes are getting less than before and yet they’re paying proportionally more for a service that at the same time seems to be in decline due to the prevalence of mobile and VoIP style services. Some of this change is evident when looking at Ofcom’s breakdown of line rental costs versus voice call revenues.
Ofcom separately notes that retail fixed voice services generated £2.03bn of revenue in Q4 2014, which is a £6m (0.3%) increase compared to the previous quarter, but it’s also a £56m (2.7%) fall compared to Q4 2013 (BT’s share of these revenues was 46.2%, a decline of 0.8% compared to one year earlier).
However the ever increasing cost of line rental isn’t merely a function for offsetting against the decline of revenue from voice calls.
The Costs of Line Rental
Admittedly the underlying wholesale cost of line rental is only a partial reflection of how things have changed because ISPs also have to add their own costs on top, such as VAT, the need for a fair profit margin, various calling services and of course annual inflationary changes (the rate of increase in prices for goods and services versus previous years).
Inflation has long been believed to play a key role in the annual line rental rises and some providers have in the past used it as an excuse, although that theory appears to have taken a hit after BT and TalkTalk announced their 2015/16 line rental hike and increased the standard monthly price to nearly £18 (this is roughly in keeping with previous rises).
However over the same period the Consumer Price Index (CPI Inflation) has remained virtually flat, sitting at around 0.1% (12-month rate from July 2014 to July 2015) and even the 12-month rate for RPIJ stood at just 0.4% or 1% for traditional RPI. All these measures are well below previous years and yet the line rental increases appear to be totally unaffected.
History of UK Inflation
2011 – 4.5%
2012 – 2.8%
2013 – 2.5%
2014 – 1.5%
2015 – 0.1% (August 2015 Prediction)
NOTE: The Government inflation target tends to be 2%, but in practice a country’s economy is dynamic and difficult to control.
We should point out that some of the big ISPs also offer an annual pre-paid “Line Rental Saver” or “Value Line Rental” discount, which saves a few pounds per year off the normal monthly cost, but this too has also been steadily increasing in price and now tracks much more closely with standard rental, only a little cheaper. Some ISPs, such as Sky Broadband, have also scrapped it.
The Broadband Impact
Ofcom’s Q4 2014 fixed line statistics reveal that, despite all of the upheaval in prices and lower consumer usage, the UK ended 2014 with 33.2 million fixed lines (25.49m residential and 7.744m business) and that was down by just 0.2% on the end of 2013, although residential lines actually increased by +524,000 over the same period (i.e. the decline came from businesses).
The above figure represents both traditional style phone (PSTN) and ISDN lines from all of the major telecoms infrastructure providers, which includes lines that are actively delivering broadband (Internet connectivity is usually carried down the same physical line as your phone service). Ofcom’s separated figure for small business and residential broadband lines came to a total of 23.73 million for 2014 (up from 22.8m in 2013).
One thing all of this data consistently tells us is that the rising line rental prices and lower voice call revenues are not being converted into a mass move away from fixed line connections, which isn’t surprising because you still need one of those lines to deliver broadband and that’s true regardless of whether it’s copper, coax or pure fibre optic (i.e. some sort of charge for the physical line must always exist).
Meanwhile most people continue to view alternative Internet connectivity services, such as Mobile Broadband, as more of a complement rather than a replacement for fixed line broadband (largely due to the higher cost of mobile data and other service restrictions). Similarly a poll of 998 ISPreview.co.uk visitors conducted last year found that 64.3% of respondents would happily get rid of their phone line if it wasn’t still required for their home broadband connection (captive market?).
Ultimately the actual voice calling component of “phone line rental” only accounts for a very small slice of the overall service cost and, when taken together, all of the above factors would thus appear to suggest that ISPs are using line rental increase as a means to off-load the rising costs of broadband provision (this may also help to make their broadband prices seem lower).
We subsequently questioned BT on their latest price rise and asked what aspects had specifically caused the most recent hike, particularly given the flat level of inflation.
A BT Spokeswoman told ISPreview.co.uk:
“We are sensitive to the economic times and we realise no-one welcomes a price rise. We are investing heavily in order to offer some of the best value bundles of lines, superfast Infinity broadband and TV for new and existing customers. We have looked after the most vulnerable customers by keeping BT Basic the same price of just £5.10 a month and adding the option of a broadband bundle for just £9.95, which is the cheapest in the UK.
Specifically, at BT, a line and Infinity is now 23 per cent cheaper than five years ago. We are also giving value back with a ‘double your data’ offer for broadband customers who sign another contract. For example, a broadband customer on a 10Gb allowance would upgrade to a 20Gb allowance for free.”
In fairness ISPs do have a lot of factors to consider, such as the need to meet new government / regulatory requirements (e.g. adding a network-level filtering service) and to cater for the ever rising data usage demands of their customers or to recover lost revenues in other areas etc. Not to mention the age old desire for more profit and, in BT’s and Sky’s case, their huge spend on TV.
At this point we’d normally try to contrast retail line rental movements with that of historic home broadband prices, but this is very difficult to achieve due to the ever changing dynamic of special offers, service features and other discounts, which makes it hard to establish a firm value baseline for most of the major providers.
It’s also worth considering that during 2015 we’ve seen most of the big broadband ISPs put their broadband prices up, with some such as TalkTalk making a bigger change than most (here). Never the less it seems clear that line rental has become the general sinkhole for many of the cost increases among major ISPs, but that might not last forever.
- 30-12-15, 04:32 PM #2
Re: Examining the Changing Cost of UK Phone Line Rental and its Future
The Future of Line Rental
As technology moves forward and consumer demands change then it’s becoming increasingly clear that the need for a traditional phone line is fading, which is something that hasn’t gone unnoticed by the wider industry.
The new generation of pure fibre optic (FTTH/P) providers and Virgin Media’s existing cable network already allow customers to take a true standalone broadband connection without a phone service. However, as explained earlier, you still have to pay for the physical line entering your home and thus the cost savings aren’t as simple as directly subtracting the phone line charge.
Price Differences (August 2015 Data)
Virgin Media’s 50Mbps Standalone Broadband = £28.50 Per Month
Virgin Media’s 50Mbps Broadband [£17.50] + Phone [£16.99] = £34.49 Per Month
Price Difference: £5.99
Hyperoptic 100Mbps Standalone Broadband = £35 Per Month *
Hyperoptic 100Mbps Broadband [£22] + Phone [£16] = £38 Per Month
Price Difference: £3
* Additional connection fees sometimes also apply to standalone offers (e.g. Hyperoptic charged £40 and this effectively wiped out the price difference for year one).
The examples above demonstrate that the practical cost difference between a standalone service and a bundle with phone is not that huge. As such those who complain about the cost of line rental should consider that even without a phone service the price they pay would not be radically cheaper, although it might be simpler and easier to promote.
But it’s not just pure fibre optic and cable ISPs that are planning to offer standalone solutions. BTOpenreach are currently preparing to trial a new Single Order GEA service (details here and here). The SoGEA solution is effectively a naked Fibre-to-the-Cabinet (FTTC) product, which would give you superfast broadband over BT’s traditional copper lines but without the phone / voice service. However it’s unlikely to deliver a huge cost saving due to the aforementioned reasons.
In the meantime some smaller providers on BT’s network, such as AAISP (Andrews & Arnold), are already attempting to offer something close to a “Naked DSL” (standalone) broadband service by giving customers the ability to take a copper pair line with no calls / voice service alongside. Admittedly you still have to pay for the line rental, but at £10 inc. VAT per month it’s very close to the base wholesale charge. Check out our Phone Line Rental Comparison list to see some other cheap options.
On top of that even BT themselves have called upon Ofcom to relax their existing regulation (here), which still requires the operator to install a “traditional” (PSTN) phone service upon request. The march towards Internet based voice (VoIP etc.) calling means that the market needs to adapt and BT envisages that traditional phone services may need to be phased out by 2025.
None of this is to say that in the future you won’t still be able to order a phone service, but the line that enters your property may preference towards Internet / data access as the primary service and phone may become an optional add-on, delivered via IP / VoIP.
Such a regulatory shift would also open the door for consumers to buy truly standalone broadband packages, if they so wish. Mind you that kind of move would also mean that the perceived price of broadband may rise significantly because the cost of underlying line rental may be moved into a single charge.
Alternatively line rental may continue to exist as a separate / primary charge, albeit with consumers now choosing whether they want to add either a phone and or broadband service on top. This would perhaps be similar to the AAISP style product mentioned above, albeit more mainstream.
In the grander scheme of things phone line rental is just a small cost next to other utility services like Electricity, Gas and Water, but it’s one we all notice and yet it’s also one that many people feel as if they don’t need. As our article shows, the cost of underlying line rental will still impact prices going forward, but how you order and pay for the services it carries may change.
PlusNet Fibre since Jan 2021
Previously Sky Fibre & Sky BB since 2010.