How are telcos responding to the cost-of-living crisis?

As the cost-of-living crisis worsens, many consumers are being forced to make difficult choices between connectivity and other necessities. How are UK telcos softening the blow for struggling customers, and what more can they do to help?

With a gloomy economic forecast hanging over us all, and the worst perhaps yet to come, will customers feeling the squeeze prioritise their phone and internet bills over other essentials?

A recent report by Which? found that, as the UK’s broadband firms are set for a £1.7 billion windfall in revenues, around six million households are struggling to afford essential telecoms services, with a growing number of customers reducing other outgoings to remain connected.

It concluded by calling on “the next prime minister” (now revealed to be Liz Truss*) to cut VAT on mobile, broadband and fixed telephone services from 20% to 5%, a move that could reduce household bills by £120 a year on average.

Earlier this year, all major service providers raised their prices by 9.3% (with the exception of TalkTalk at 9.1%), in line with the consumer price index (CPI). Giffgaff has since bucked this trend, announcing that it would freeze prices on all their tariffs until the end of 2023.

As we noted previously, this price rise wasn’t reflective of any tangible increase in the cost of delivering telecoms service; it was driven by price increases in other areas, particularly food and fuel, driven by the lingering effects of the COVID pandemic.

Even as far back as February, Ofcom’s Communications Affordability Tracker found that 3.5 million households had already cancelled telecom services in response to price rises, while a survey by Lycamobile found that 65% of major MNO customers in the UK are reconsidering their contracts because of the economic forecast. Those who haven’t cancelled services but are looking to save energy have been warned not to switch off their broadband routers, as this may prevent critical security updates from being automatically downloaded and installed.

As of now, six providers (BT, Community Fibre, G.Network, Hyperoptic, KCOM and Virgin Media O2) offer social tariffs. To foster wider adoption of these tariffs, the government is launching a new system for ISPs to confirm whether benefit claimants qualify for social tariffs, with the customer’s permission of course.

EE launched its Stay Connected scheme last year, giving users who’ve used up their monthly data allowance a trickle of data sufficient to access emails. Now it’s going one step further by providing free independent, debt advice to customers, and permitting its advisors to make direct referrals to the Money Adviser Network, reportedly already helping out 3,000 customers struggling financially.

Earlier this summer, the UK’s major MNOs met with central government to agree on a plan to ease the bill burden for millions, with measures including letting customers switch plans without incurring penalties, flexible repayment plans, and better awareness of social tariffs, for which only 1.2% of eligible households have registered thus far.

But it isn’t only customers who are struggling with rising prices, as it’s been warned that many smaller altnet providers could face bankruptcy in the face of inflation, according to an anonymous industry insider quoted in a report from the Telegraph [paywalled] back in May: “It seems to be a bit of a red flashing light that Ofcom is thinking about it at all. It cannot be entirely sustainable when you already have big network builders.”

The altnet scene in the UK may in fact have already hit “saturation point,” as they cover some 11% of the total market (almost 5.5 million households).

Under Ofcom’s worst-case scenarios, BT would, as a “Supplier of Last Resort”, find themselves with potentially thousands more customers, as those of any failed ISPs would be routed to them. This isn’t a speedy process, and could result in outages for many customers should their provider go bust.

In fact, Lutz Schuler, chief executive of Virgin Media O2, warned at last year’s Connected Britain conference that the country’s broadband plans were more fit for a population triple the size of the UK, and that smaller networks would struggle to compete against incumbents as inflation continues to rise, making insolvencies and takeovers inevitable.

There are already some signs of the market consolidating, with Ovo Energy recently handing over its 100,000 or so phone and broadband customers to TalkTalk in order to focus on utilities, and a major new merger between Vodafone and Three now on the cards.

Nevertheless, it’s the opinion of network intelligence firm Ookla that altnets have “an important role to play in the UK’s gigabit future,” already offering customers the best speeds in Glasgow, Liverpool, London, and Manchester.

Meanwhile, in America, where AT&T has reported a rise in customers paying their bills late, the Democrats are looking to kill two birds with one stone with the Net Neutrality and Broadband Justice Act, classifying broadband access as a telecommunications service, therefore essential, legally ensuring access to connectivity for all.

Though the recently announced energy price cap and controversial "mini-budget" could potentially stave off further rises to phone bills in the short-to-medium term, the longer term picture is far less clear; telcos must alleviate customer concerns, offering social tariffs to ensure customers can access the internet, and make information about these and their eligibility requirements clear and easily accessible, with a simple and straightforward application process.

* UPDATE 25/10/2022: This article has been updated to reflect that Liz Truss stood down as Prime Minister of the United Kingdom after 49 days in office, with Rishi Sunak, former Chancellor of the Exchequer and her previous rival in the Conservative Party leadership contest, taking over.