Ofcom: broadband is cheaper and faster than ever

Source: Ofcom

Over the past decade, the buzz and ding of dial-up internet has given way to the zing of ADSL and, later, superfast fibre and 4G. Last year the average broadband speed hit 14.7Mb.

Yet, the communication regulator's report reveals, prices are at an all time low.

In 2004, the average cost of broadband was £31.79. In 2012, it had fallen by almost half (48%), to £16.38.

Source: Ofcom Consumer Experience report 2013 available here

These price decreases have largely been driven by an increase in provider discounts for packaged services and paying upfront, the Ofcom report reveals.

As a result, while prices have declined for the majority of people, low income households and older people are likely paying more for their telecoms services now than they were a few years ago.

Paying less for home broadband and phone

In the main, though, Ofcom's research shows that people are getting more bang for their buck: they're spending less on telecoms and getting better service.

Ofcom found that the average UK spend on communications has fallen by 1.3% since 2011. The average cost of communications is now £12.38 a month, 9.8% cheaper than in 2007.

That's particularly impressive given the improvement in service we've seen in the same period.

Ofcom's research shows that households have preserved low prices in part by taking more products from a single ISP - bundling broadband with line rental or with pay TV - and paying upfront in a lump sum.

In the second quarter of 2013, Ofcom found, 69% of households with a home phone had a bundle of services and 17% used prepayment tariffs.

Essentially, to keep the low prices we've been accustomed to in our ultra competitive broadband market, we've made it a little less competitive: big providers that can offer more services win out.

One service that's been key here is fibre broadband.

Ofcom show that the cost of fixed internet increased by 19p (1.2%) in 2012 when the number of people switching to superfast broadband increased by 11%.

Source: Ofcom Consumer Experience report 2013 available here

Superfast connections usually have a premium of £5 to £10 a month so the increase could have been much greater.

The average price only increased slightly for two reasons.

First, broadband customers are so price sensitive that, as we've noted before, high costs have kept take-up of fibre services fairly low.

Second, the biggest providers were able to soften the blow of increased fibre costs with special offers and deals like prepayment.

The UK's 'big four' have been able to use fibre to get even bigger and, on the consumer side, prices haven't gone up overall as much as we might have expected after the launch of fibre.

Is the tide turning?

However, evidence that prepayment is important to lower prices is particularly interesting at the moment.

Just a few weeks ago, Sky broadband withdrew their Line Rental Saver deal.

Previously, Sky customers could pay for line rental for 12 months in advance.

The upfront payment reduced the monthly fee to the equivalent of £9.95 a month, compared to the standard price of £15.40, a saving of over £60 a year.

The discounted price was withdrawn without any notice or reason on 19th December 2013.

Customers speculated on forums that it could have been withdrawn as a result of 'technical problems' with their billing system, a recurring problem for Sky.

Currently, the other ISPs do still offer similar deals, with monthly prices ranging from £9.50 (TalkTalk) to £10.75 (BT).

However, we do often see the ISPs following one another so Sky cutting its prepaid line rental discount might lead its rivals to take the opportunity to reduce their discounts or get rid of them altogether.

That would put everyone in the same boat as lower income and older households, who are far less likely to bundle or take prepayment and who have seen their telecoms prices increase (though only a little) in the past few years.

Lower income households miss out

Ofcom found that socioeconomic groups C2 and DE, lower income groups, are actually paying more for their communication services than the rest of the UK.

The average cost of a basket, including fixed telecoms and pay TV services, in the UK was £56.12 in 2012.

But C2 and DE households paid more than average, by 15p and £1.66 respectively, while all other groups paid less.

Lower income households are less likely to make a prepayment: it's a big lump sum that many may not be able to afford.

They're also less likely to bundle services, which is increasing broadband costs.

Ofcom found that older households are also paying more for the same reason.

They're more likely to have just one service (e.g. not to have broadband, more here), which is more expensive.

We've reported previously that some customers aren't getting a good deal with prepayment.

By paying the discounted price for upfront for line rental, for example, customers are locked into another year's contact.

If they're out of contract, they're essentially getting into another one and they have less incentive to switch.