In 2016 we saw Ofcom and the wider regulatory bodies continuing to ‘step it up’ in terms of putting out some clear signals to the market and direct intervention. There were several million pounds worth of high profile fines and penalties, new proposed regulations for triple play, auto-compensation and the ordered legal split of Openreach from BT, as well as some more subtle moves to influence this highly competitive market.
Within the last twelve months TalkTalk were fined £400,000 by the Information Commissioner Office (ICO) for their high-profile data breach, whilst Vodafone were penalised more than ten times this amount (£4.6m) by Ofcom directly for ‘serious and sustained breaches of consumer protection rules’. We have also seen EE pick up a £1m penalty for its complaints handling and BT charged £800,000 over a delay in a text-to-speech service. Furthermore, we have seen the European Commission block the £10.3bn sale of O2 to Hutchison (the owner of ‘Three’) stating ‘strong concerns…that it would reduce customer choice and raise prices’ and, more recently, something equally significant relating to the rumbling discussions on BT and Openreach. Ofcom has made a formal notification to the European Commission to force through the legal separation of Openreach. Whether this is ‘sabre rattling’ or not, there have been some clear and frequent signals from the regulators and more is to come.
Regulation to shape the market
The TMT sector involves fast moving businesses responding to B2B and B2C customers demanding universal access, high speed and quality services, interlinked provision through the ever-expanding Internet of Things (IoT) and a high quality 24/7 delivery. In what has been a relatively deregulated market in the UK, there has been rapid growth since the millennium, significant mergers & acquisitions (M&A) activity, and development of propositions which have seen the rise of bundled offerings such as Triple Play (Fixed line, TV and Broadband) and Quad Play (Triple Play plus Mobile). The historic monopoly network position of BT through Openreach is increasingly seen by the competition as a constraint on the market and the quality of provision. Against these market changes, the regulators have stepped in to protect consumers, ensure open and fair competition and provide a framework to the market for businesses to set strategy.
The Ofcom CEO, Sharon White summarised their position stating, “we would like to see a new framework for telecoms & TV regulation that protects the future needs of consumers…while allowing us to take part in a global debate over how these fast-moving sectors evolve”.
Trends for 2017 – mergers & acquisitions, switching & compensation, and data management
The Hutchison/O2 public courting has flushed out a potential price for the Spanish-held UK asset and with Brexit looming, will this influence a further potential sale despite the initial EC direction? Maybe, but we know Hutchison won’t be coming back with another offer, as Ofcom made it clear their position was aligned with the Commission. What we do know is that both deal making and asset sharing will be a continuing theme for regulators to oversee.
In terms of Moorhouse, we are currently advising and preparing client responses to Ofcom consultations and assessments on switching and compensation. This includes Triple Play Switching, which will provide more options for the customer to unpick bundled provision and choose different products and services from separate providers such as BT, Sky, Virgin Media and TalkTalk. They will need to facilitate the switch. Such a move impacts current operating models and has associated costs. This carries a far greater risk of customer churn and starts to limit the ability to cross-sell on long contracts. The solutions behind such a switching mechanism will also be complex, with multiple systems and platforms involved. These complexities present a danger for providers and customers as they could provide a further route to a non-satisfactory experience.
Auto-compensation is another area featured in the Digital Communications Review (Ofcom, 2016) where Moorhouse is involved. Processes for direct customer compensation for poor service will be put in place and the race is on for either agreed cross industry standards and a self-regulated environment or more direct intervention from the market regulator. The dependency on Openreach service levels of all the major fixed brand providers adds spice to this debate.
Finally, the replacement of the Data Protection Act (1998) with the General Data Protection Regulation (GDPR) will have far reaching impacts on the industry. With data at the core of the communication industry, we have seen a range of responses in order to; protect and safe guard customer data and ownership rights; secure processing and data mining; and ensure information is lawfully used. When a customer signs up to a service or ticks the box in a trade-off for speed of access, what happens next to the information provided is at the core of the European regulators’ upgrade.
Telecoms regulation - Friend or Foe?
Whilst appearing diverse, the direction is clear. In this fast-moving industry where the free market principles have ruled there is a new regulation paradigm and a refreshed agenda of intervention which is not going to go away. Treating regulation as a friend rather than a foe and using external expertise to help it shape the business opens new opportunities.
As organisations channel funds toward customer choice, higher service levels and more data protection on a faster, safer and more efficient network, consumers will follow and reward the brands that succeed in navigating the direction of the regulators.
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