12.2 As we have set out earlier in this document, our starting point is that well-functioning, competitive markets are the best means of delivering good outcomes for all
consumers. However, even in competitive markets, there can be factors which prevent consumers getting the best from markets – for example because they find it difficult to compare offerings or face artificial barriers to switching. There are a
number of risks on the ‘demand side’ that could result in ineffective consumer choice, harm to consumers or the exclusion of some groups of consumers.
12.3 To address such risks, we have an approach to consumer policy based on three pillars: empowerment, protection and participation:
Consumer empowerment Consumer protection Consumer participation Delivering benefits of
competition to consumers by ensuring that they have the information, tools and processes they need to navigate and secure benefit from markets for themselves.
Protecting consumers from harmful behaviour and unfair practices by CPs (e.g. mis-selling or mid-contract price rises).
Based on public policy objectives, it includes ensuring that no one is excluded from the benefits of the services we
regulate. It covers the availability, take up and effective use of services. 12.4 In this section we focus specifically on the consumer empowerment aspect of
consumer policy and its role in supporting competition. However, we recognise that there are important linkages between the three elements of our approach: each of them is equally important in enabling us to achieve our objectives.
12.5 Communications services differ from the utility services provided by other network industries such as energy or water in that they comprise a range of different services, offered by different providers, and aimed at different consumers. This range of choice and differentiation brings benefits for consumers. In principle, they can find services or packages of services which most closely meet their needs. However, in practice consumers can only realise these benefits if they are able to exercise effective choice.
12.6 For the benefits of competitive markets to flow through to consumers, consumers themselves need to be engaged. This means that they need to be able to shop
around, have relevant information at their disposal and be able to make the choice that is right for them. Consumer policy is sometimes referred to as the “demand-side” of competition policy because consumers have an important role to play in the
operation of effective competition. For example, if consumers find it difficult to switch when they received a poor service, or in the face of high prices, then firms will have less incentive to respond to the needs and preferences of their customers.
12.7 There may be a range of possible problems that prevent consumers from engaging effectively with firms. These demand-side factors do not necessarily relate to the presence of market power and can be a general feature of the market rather than specific to one company. Examples include:
• Limited or incomplete information: a lack of information and transparency for consumers leading to them being unable to make the best choices. For example, if consumers do not have clear and easy to understand information relating to a service’s technical aspects such as download speed or traffic management, then firms are less likely to compete on that particular service feature. As a result, consumers may not be able to identify the communication provider that offers the service best suited to them.
• Behavioural factors: systematic patterns of behaviour (or biases) can adversely affect the ability of consumers to make fully-informed choices. This can influence the choice of product attributes on which firms choose to compete, resulting in consumers buying products that may not be best suited for them, over-paying for the service they use, or entering contracts unwittingly. An example is
automatically renewable contracts where status quo bias185 resulted in customer inertia and limited switching. This led to Ofcom ensuring that consumers renew their contracts by ‘opting-in’ to the new contract term rather than needing to ‘opt out’ of the renewal occurring automatically.
• Coordination problems: a lack of co-ordination between firms can also negatively impact markets and consumers. Firms may not have the incentive to co-ordinate on the design of processes or systems. For example, we mandated Gaining Provider Led (GPL) switching for services using the Openreach and KCOM networks in 2013186 to ensure that consumers are able to switch easily. 12.8 The presence of one or more of these factors does not of itself imply a need for
regulatory intervention. In deciding whether or not to intervene, and how, we also consider:
• whether the demand-side factor identified is an enduring feature of the market or transitory in nature. In some cases, problems could be short-lived given
consumer behaviour adapts or market-based solutions emerge to help consumers tackle these problems;
• the risk of regulatory failure or any unintended consequences from taking action;
• whether the intervention is proportionate in terms of cost and level of intrusiveness to the scale of harm; and,
185
A “status quo” bias refers to a pattern of behaviour in which consumers give disproportionate weight to their existing position and prefer to stick with it even when other, better options are available.
186
These changes then came into effect in June 2015.
• what forms of intervention could be most effective (e.g. ‘nudging’ in relation to consumer behaviour).