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The cost of line rental: Where the hell does the money go?

Thursday, December 1st 2016 by Dan Howdle
A few years ago I commissioned some research to discover how the price of line rental was affecting people of different age groups around the UK. The conclusions weren’t entirely unlike those Ofcom has come out with today in its Landline Prices Review.

In January of 2014 use of landlines was like the Leaning Tower of Pisa: Irrevocably tilted towards the older generation, but unlikely ever to fully collapse. 62% of those aged 16-45 never used their home phone. Over 60% of landline users were over 65 years old, and of course: Line rental charges continued to rise despite the decline in usage.

Here we are three-ish years later and the situation is worse than ever: The older generation is slightly older, the younger generation gives slightly less of a shit about a phone tethered to a wall, while the cost of line rental continues to rise at psychotic velocity.

But it’s only a few quid, right? It doesn’t make that much difference…

If that is indeed the way you’re thinking about this, chances are you have some sort of bundle involving broadband and TV as well as your home phone, which in all cases (bar Virgin Media) you’re obliged to take out with a landline.

The thing about bundles is that when the cost on something goes up – whether that be line rental, broadband or Sky Sports (which goes up in price approximately every afternoon, about teatime – thanks Monty Python) – they possess what I can only describe as a certain amount of ‘absorbency’.

What that means is that providers will push numbers between little Excel boxes so that if, say, your line rental goes up by a couple of quid, the amount of revenue a provider can expect from your broadband deal or your TV package can go down a bit, while the annual price you pay overall will stay as it is.

When the price of your existing package or bundle does go up, this is usually related to the Consumer Price Index (CPI) – a list of commonly bought goods and services whose movements in price (up or down) is used to measure inflation – and a separate issue.

But, put yourself for a moment in the shoes of a person who has a landline and only a landline as their only easy access to the outside world. They don’t have broadband, and they would rather have a chat than watch Game of Thrones. Let’s also assume this person is either older, disabled or both. How much do you think a few pounds per month will affect them now? As the price of landlines rises, those who don’t use them come out largely unscathed, while those who have less to spend take a big, wet slap to the face.

Perhaps it would be easier to swallow if the price of wholesale (the cost of leasing of PSTN lines, broadband services, and other telephony services to retail customers including Sky, TalkTalk and so on) had gone up. Perhaps if the price of running the network and therefore the price of leasing from it had sky-rocketed this would be understandable. But no, the underlying wholesale price has come down by 25% over the same period prices to customers have risen by between 28% and 41%.

So back to the question in the headline: Where the hell does the money go?

Last year I spoke to Mike Kiely. Kiely, a former veteran of BT told me that the line rental charge customers pay Openreach could be broken down into rough thirds: Infrastructure (rollout and maintenance), BT Group (running costs and profit), and shareholders.

Whether this is accurate or not I cannot confirm, but does the seemingly endless ratcheting of line rental costs as wholesale prices tumble not suggest an element of greed? Of corporate finagling to ensure shareholders get their coupons? I’m not making any moral judgments on this – companies need to please their shareholders to stay healthy. I only raise the question.

In terms of the price rises themselves, what we are seeing here is the classic psychological concept of the slow boil. Put the price up a little each year and everyone just thinks: “Well, that’s prices for you, isn’t it? Always going up, prices are. Roll of Polos was 6p when I was a kid. It’s natural”. And we tend to believe this without looking to see if we’re actually being robbed.

Ofcom is absolutely right to focus its efforts on reducing the burden for those who can least afford to bear it. But in the wider picture, should we also not seek to find out exactly where our money goes?

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