Migrations, switching and mis-selling

Summary

Introduction

1.1 Ofcom is the independent regulator for the UK communications industries. Our role is to look after television, radio, telecommunications (‘telecoms’) and wireless communication services.

1.2 This document looks at the ways in which customers (i.e. customers of telecoms and internet services, both at home or in business) are able to move between companies for the provision of their services to help inform our thinking as to whether competition is being effective in delivering benefits to customers. This requires that customers can move easily between companies and/or products, and feel confident to do so. It also requires that customers are adequately protected from dishonest sales and marketing behaviour including ‘mis-selling’, where providers fail to give true and complete information about their services, or ‘slamming’, where customers are simply switched to another company without their express knowledge or consent.

1.3 This document therefore reviews current approaches to migrations, switching and mis-selling across transferable voice and broadband products, and whether these approaches are consistent with Ofcom’s principal duty, as set out in section (3)(1) of the Communications Act 2003 (‘the Act’); namely:

”(a) to further the interests of citizens in relation to communications matters; and

(b) to further the interests of consumers in relevant markets, where appropriate by promoting competition”.

1.4 This is particularly important because there are now various ways to get the best deals, sometimes buying a ‘bundle’ of several products together or by buying separate products from different companies. Ofcom welcomes this development which should lead to greater competition which, in turn, should mean improved prices, choice, quality as well as encouraging new ideas. However, competition doesn’t automatically lead to benefits; in Ofcom’s view, there are two key elements which will need to be in place to get the best from a competitive market.

1.5 The first is information. It is important that customers have all the facts in front of them so that they are confident in shopping around and knowing what’s out there. For this to happen, customers need to know the choices on offer, explained in a way which they understand so that they can assess the benefits of new products, services and ideas for themselves.

1.6 The second is that there should be no obstacles in the way of customers who choose to move between companies and/or products. The process for switching behind the scenes should be swift and efficient, and enable customers to move from one company and/or product to another with no interruptions or problems.

1.7 It is this second issue which is the primary focus of this document. The first, concerning information, is dealt with as part of a separate consultation, called Ofcom’s Consumer Policy, which was published on 8 February 2006. It is available on the Ofcom website at: Ofcom's Consumer Policy (PDF, 1.5 MB)

1.8 In looking at switching processes, Ofcom will need to look at the likely impact in relation to protection from dishonest sales and marketing behaviour. It is important that Ofcom balances facilitating easier switching with any potential adverse effect on customers’ interests.

1.9 Ofcom is consulting on these issues now given current discussions around the development of Next Generation Networks (‘NGNs’) as well as ongoing work related to the implementation of BT's Enterprise Act Undertakings of 22 September 2005 following on from Ofcom’s Strategic Review of Telecommunications (‘the Telecoms Review’). Ofcom believes that these developments are likely to influence changes to switching processes and, in particular, a shift towards common processes. It is therefore a good time for Ofcom to hear the views of interested parties on these issues in order to develop our thinking and provide increased regulatory certainty going forward.

Background

1.10 A well functioning market should make switching between companies and/or products as straightforward as possible by taking away any artificial barriers. Where switching is not easy, customers are less likely to want to switch. The fact is, however, that switching isn’t always simple because different processes have evolved over time for different products. As a result, switching can become very complicated, particularly as more and more people want to transfer a ‘bundle’ of different products together. Because of this, it is likely that the customer experience of trying to switch between companies and/or products is likely to be different depending on the product(s) involved. For example, there are likely to be variations in:

• checks and authorisations used;
• how long a process takes;
• how well customers are protected;
• how well customers are kept informed;
• the steps a company may take to try to keep its customers (known as ’save’ activity’);
• how complicated it is; and
• what customers are charged.

1.11 In addition, for certain types of switching (such as where there may be more than one company and/or product involved), there may be no process in place at all. Where this happens, customers will have to cancel one service completely, and then order another one separately. This is likely to be very disruptive, and can prove to be a barrier in deciding whether or not to switch.

Scope

1.12 The intended scope of the discussions in this document focuses on the following scenarios:

• switching between companies and/or products where there is a direct customer impact; and
• where there is no direct customer impact and the change only happens behind the scenes – for example, changes from one technology to another. Under this scenario, there will typically be no real difference in the service provided.

1.13 This document does not directly cover developing trends such as where customers may wish to switch between three or four services (including their television and mobile services). While Ofcom recognises that these developments raise important issues, these may be considered as part of a future consultation.

Developing Ofcom’s policy objectives

1.14 In order to help the consultation, Ofcom is proposing four policy objectives which it considers relevant in order to further the interests of customers in relation to migrations, switching and mis-selling. These are as follows:

• a good customer experience;
• proper protection against dishonest sales and marketing activity such as mis-selling and slamming;
• well informed customers; and
• supporting competition in retail and wholesale markets to the benefit of customers.

1.15 Ideally, all these objectives would be fully achieved. However, Ofcom accepts that there may need to be compromises, depending on the state of competition, and how well it’s working.

Ofcom’s approach

1.16 This document is primarily focused on questions and issues raised by the practical application of these four objectives to help inform our thinking in two ways. First, whether both customers and the telecoms companies would be better served by moving to standard processes. To help the consultation, Ofcom has identified the possible impact of various options for moving towards standard processes. Second, whether Ofcom should have a role in encouraging or requiring changes towards those processes.

1.17 It is also necessary to assess whether the relevant markets are working properly. If they are not, then it is important to consider whether leaving them to normal market forces will fix the problem. If not, then it is important that we judge whether there are steps we should take.

1.18 Ofcom intends to carry out a further consultation on these issues later in the year which will set out our thinking in more detail in light of the responses to this document. This will include a fuller impact assessment of the options identified in the document.

Moving towards common processes

1.19 Ofcom’s initial view is that there may be good reasons for moving to a single switching process no matter what the service or product may be. This is because:

• at the moment, customers don’t know how they will be switched from one company or product to another;
• there’s a rising number of complicated bundles of products being put through systems designed for single products only; and
• what we have now is inefficient and complicated, both for existing companies and new businesses coming into the market, and this is likely to get worse.

1.20 At the same time, Ofcom recognises that introducing new processes can cause serious disruption and add costs which may, in the long run, be passed on to customers. Ofcom therefore wants to know how, if a new single process is a good idea, disruption and costs could be kept to a minimum.

1.21 Ofcom would also like to hear the views of interested parties on the three processes that could be used to achieve a single process. These are:

Letter Facilitation process

1.22 The ‘Letter Facilitation’ process is used when customers want to make a change to their fixed-line telecoms service. It is designed to make sure that customers are fully informed before any switch is made. Under this process there is an opportunity to stop the process – where customers simply change their mind or are the victim of slamming - as there is a ten working day pause before the switch happens. During this time, customers will typically receive letters from both the company they’re leaving as well as the company they’re moving to.

1.23 Under this process, all fixed-line telecoms providers have to create, and abide by, codes of practice for the way they sell their products and services.

MAC Process

1.24 If a move involves broadband products, customers will need a ‘Migrations Authorisation Code’ (‘MAC’). Customers are required to obtain this code from the company they’re leaving in order to give to the company they’re joining. The MAC therefore is essentially a ‘passport’ to move to a new broadband service. This process works alongside a voluntary code of practice developed by the industry in order to make sure that everything is fair and reasonable, for both customers and the industry.

Single Code process

1.25 The ‘Single Code’ process runs on similar lines to the system used by electricity and gas companies.

1.26 Here, customers would hold the key to the process. It could only be started when the customer personally gives the code to the company to which they’re moving to. It’s therefore similar to the MAC process, with the key difference being that customers don’t need to contact the company they’re leaving to start the switch.

1.27 For this to work for customers, the process would need to make sure that the code is readily available at the point at which the customer wants to switch - on a bill, perhaps, or some other simple solution.

Ofcom’s role – what should it be?

1.28 The views Ofcom’s receives in response to this consultation will help us to decide what action – if any – we should take. It could be that we should encourage a move towards a single switching process for all products, services, customers and companies. Or, perhaps we should use our powers to make it compulsory. Alternatively, the best action may be to ‘leave well alone’ – or even to withdraw from regulating this particular issue altogether.

1.29 At the moment, we’re looking at the following possible scenarios:

No reasonable expectation of a future problem to justify intervention in the relevant markets today

1.30 It may turn out that the growing numbers of bundled products being switched do not pose the problems that some imagine. If this is the case, Ofcom may decide to leave things as they are, and perhaps step back from certain areas we currently regulate. This could happen if it looks likely that the issues raised in this consultation could be solved by the telecoms companies negotiating together.

Reasonable expectation of problems to justify intervention in the relevant markets today

1.31 It could be that Ofcom will find that the market is failing, or likely to fail, with no prospect of the problems fixing themselves. In this case, Ofcom may develop a new framework to bring in the regulation we think the market needs. We would do this by:

• looking at the issues caused by the various switching processes on a case-by-case basis;
• bringing in minimum standards in some areas, but on a case-by-case basis in others; or
• insisting on setting minimum standards across the board in all cases.

Stopping unfair tactics from the losing provider

1.32 The company which customers are leaving is known as the ‘losing provider’. During the switching process, it is possible that some losing providers may gain information that gives them an unfair advantage over their competitors. They are not allowed to use this information but it’s easy to see how this can cause mistrust and lead to abuses. Ofcom is therefore inviting views on what safeguards should be introduced. These could cover, among other things:

• current service characteristics: as part of the switching process, it is necessary for the new company to know details of the products and services that a customer has with their losing provider. They can then assess whether a customer’s new service is available or compatible; and
• unique identification of line: as part of the switching process, and for the switch to take the place, both the customer’s old and new companies must be able to identify, and agree on, the precise line to be transferred.

1.33 There is also a concern that losing providers may use specific information for purposes other than just arranging the transfer. This includes:

• ‘save’ activity: losing providers may use the information they’ve been given to try to persuade their customers to stay. This is not allowed – information should only be used to help arrange the switching process;
• ‘cancel other’ functionality: This enables losing providers to cancel orders in certain circumstances, for example, where slamming is suspected. However, it can be open to abuse unless there are rules governing its use.

Stopping unfair tactics from the gaining provider

Third Party validation of orders

1.34 The company which customers are joining is known as the gaining provider. In order to get customers to switch to them, Ofcom is concerned that there may be a possible lack of adequate incentives on gaining providers not to engage in irresponsible sales and marketing practice, including mis-selling and slamming. To stop this and other abuses, Ofcom is asking for views on third party validation. This is where an order is validated by an independent, separate body before the switch take place such as, for example, sending a notification letter to all customers in advance of the switchover. This might be useful in warning customers against the possibility of slamming. On the downside, however, it might also add costs and another layer of complexity to the transfer process.

Bulk migrations

1.35 Ofcom always looks for ways to stimulate competition, with the aim of delivering more choice and lower prices to customers. It is therefore important that, behind the scenes, the wholesale part of the telecoms industry can process customer switches in bulk, with the same ease as transferring a single customer. Ofcom therefore believes that processes need to be as simple and efficient as possible, and designed around fairness, value and healthy competition. Where appropriate, therefore, Ofcom would expect that the processes should be no different for bulk migrations than where there is a single customer switch.

Initial proposals

1.36 From what Ofcom has seen so far, our initial view is that there may be good reasons to move away from specific processes for particular products, and replace them with a single, uniform process for switching. Of the various approaches set out in this document, Ofcom believes that the Single Code process would appear to have the greatest benefits, although this will depend on the way in which the code is managed. In particular, Ofcom believes that a single code process would best address the current lack of incentives for providers to behave responsibly and, specifically:

• the lack of incentives for losing providers to give their full support to helping their customers switch; and
• the lack of incentives for gaining providers not to engage in mis-selling and slamming.

1.37 Ofcom therefore sees that the benefits of a single code process would include:

• putting control of the process into the hands of the customer rather than the losing provider; and
• giving protection against mis-selling and slamming because the potential for the transfer to happen without the customer’s agreement is minimised.

1.38 However, Ofcom needs to think about how a single code would work in practice; in particular, the need to make sure that the process makes it easy for customers to find the code at the point at which they need to switch between companies but still providing protection against mis-selling and slamming.

Ofcom’s proposed principles

1.39 In Annex 5, Ofcom outlines certain principles which it believes would provide a useful framework to guide future discussions on the whole area of migrations, switching and mis-selling. In particular, the principles focus on the need to achieve smooth end-to-end processes for switching with proper safeguards to make sure that customers are well-informed and well protected. Ofcom would be glad to hear the views of interested parties on whether they can be applied both to switching now, and to new processes developed in the future.

Getting our priorities right

1.40 The scale of the issue is shown by the fact that BT has identified some 160 possible switching processes. Although it would be possible to work through all of them in a systematic approach, Ofcom believes that it makes sense to identify the most important ones, and focus on them first. We would like views on how we decide which processes should take priority, and the best way to move forward.

Next steps

1.41 Ofcom’s document raises a number of issues - some extremely detailed and complex – which need to be debated as Ofcom develops its policy in this area. Ofcom believes that it is essential to have the full participation of both customers and the industry in taking this work forward, and sees this document as a first step in engaging with stakeholders in an open and transparent manner.

1.42 Ofcom intends to build on this with active discussions with all the interested parties, and looks forward to a wide range of responses to this consultation. We plan to publish a Statement during summer 2006, summarising those responses and explaining how we intend to take this work forward.

1.43 Gavin Daykin is leading this consultation. Please send your responses to gavin.daykin@ofcom.org.uk

The full document is available below: