A blog by TalkTalk Chief Executive, Tristia Harrison
Telecoms pricing is firmly back on the agenda. This morning, Ofcom announced new steps designed to stop loyal customers paying more than new ones. I wanted to explain why TalkTalk, as the challenger in the market, thinks Ofcom is right to look at this and why fairer pricing is essential.
For too long, the telecoms industry has taken advantage of loyal customers. Whilst switching provider can save you a lot of money, it’s not fun. That’s partly because the large firms in the market have cynically obstructed efforts to make it easier.
Having made it difficult to switch, companies often then penalise those that don’t. The best deals are often reserved for new customers. Once those deals expire, prices rise, leaving loyal customers paying significantly more than new ones without realising.
I know this, because for a while, TalkTalk was guilty of it. Having started life as the challenger committed to making the market fairer, we started to copy some of the bad habits of our rivals.
But two years ago, we decided to change. We asked our customers what frustrated them about the market. Loyalty penalties were top of their list. So we listened. Since then, we’ve been working to tackle them.
We changed our business model and made it fairer. We launched new deals, called Fixed Low Price Plans. As the name suggests, they bucked the trend in the market by guaranteeing not to raise broadband prices mid-contract.
The new plans were very affordable, but crucially, we didn’t restrict them to new customers. We actively encouraged our existing customers, who often paid higher prices, to switch and save money. That meant we effectively lowered prices for millions of existing customers to bring their bills into line with new customers.
And we made it easier for customers to always stay on our best prices. Too often, companies hope customers don’t realise when their contract is expiring, meaning they accidentally roll onto higher prices. We don’t think that’s fair. We now write to customers warning them that their contract is coming to an end and encouraging them to re-contract for better prices. If they don’t do anything, we send a reminder.
Some customers actively choose to roll out of contract and pay higher prices, because they want the flexibility of being able to leave at any point without penalty. That means on average, existing customers still pay slightly more than new ones. However, because we now proactively contact customers to warn them when contracts are expiring, the proportion of customers out of contract has fallen. Given the choice, most prefer to sign again and save money.
That means that the gap between what our new and existing customers pay has been shrinking. On average, the difference is now just £1-2 per month. The opposite is true of our rivals.Their gap has been growing and is now typically £13-15 per month.
Becoming fairer did come with a cost. In the short-term, our profits declined as we lowered prices for existing customers. But we’re ripped the plaster off, and now have a simpler, fairer business that will ultimately be more profitable over time.
It’s proved popular too. Before we launched our new plans, our customer base was declining. Since launching the new plans, we’ve become one of the fastest growing companies in the market. And our customers are happier, too. That’s why the number of customers leaving us has fallen to its lowest ever level.
So TalkTalk has proved it can be done. As an industry, we don’t have to penalise loyalty. It’s a choice.
I had hoped that the rest of the market would follow our lead, but it hasn’t happened. If other companies won’t act voluntarily, perhaps it’s time to consider regulation to protect customers.
That’s why I welcome Ofcom’s announcement today. The Competition and Markets Authority will also shortly announce whether they intend to investigate the issue. We think they should.
I don’t know what the outcome of Ofcom’s work will be. But I do know that the telecoms industry can be better than this. It’s time for customers to come first. It’s time for the industry to stop punishing loyalty and start rewarding it.