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Posts Tagged ‘access’

BT, Openreach and Ofcom

The government plans to improve broadband access across the country and BT is a key company within this agenda. However, one of the problems with BT concerns its natural monopoly over the cable network and the fact that this restricts competition and hence might prevent the planned improvements.

Ofcom, the communications watchdog has now said that BT must open up its cable network, making it easier for other companies to access. This will allow companies such as Sky, Vodafone and TalkTalk to invest in the internet network in the UK, addressing their criticisms that BT has under-invested in Openreach and this is preventing universal access to decent and affordable broadband. There have been calls for Ofcom to require BT and Openreach to separate, but Ofcom’s report hasn’t required this, though has noted that it ‘remains an option’.

BT has been criticised as relying on old cables that are not sufficient to provide the superfast broadband that the government wants. The report may come as a relief to BT who had perhaps expected that Ofcom might require it to sell its Openreach operation, but it will also remain concerned about Ofcom’s constant monitoring in the years to come. BT commented:

“Openreach is already one of the most heavily regulated businesses in the world but we have volunteered to accept tighter regulation … We are happy to let other companies use our ducts and poles if they are genuinely keen to invest very large sums as we have done.”

Its rivals will also be in two minds about the report, happy that some action will be taken, but wanting more, as Ofcom’s report suggests that “Openreach still has an incentive to make decisions in the interests of BT, rather than BT’s competitors”. A spokesperson for Vodafone said:

“BT still remains a monopoly provider with a regulated business running at a 28% profit margin …We urge Ofcom to ensure BT reinvests the £4bn in excess profits Openreach has generated over the last decade in bringing fibre to millions of premises across the country, and not just make half-promises to spend an unsubstantiated amount on more old copper cable.”

The impact of Ofcom’s report on the competitiveness of this market will be seen over the coming years and with a freer market, we might expect prices to come down and see improved broadband coverage across the UK. In order to achieve the government’s objective with regards to broadband coverage, a significant investment is needed in the network. With BT having to relinquish its monopoly power and the market becoming more competitive, this may be the first step towards universal access to superfast broadband. The following articles consider this report and its implications.

Ofcom opens a road to faster broadband The Guardian, Harriet Meyer and Rob Davies (28/2/16)
Ofcom: BT must open up its Openreach network Sky News (25/2/16)
How Ofcom’s review of BT Openreach could improve your internet service Independent, Doug Bolton (25/2/16)
Ofcom’s digital review boosts faltering broadband network Financial Times, Daniel Thomas (25/2/16)
The Observer view on broadband speeds in Britain The Observer, Editorial (28/2/16)
Ofcom tells BT to open up cable network to rivals’ BBC News (25/2/16)
Ofcom should go further and break up BT Financial Times, John Gapper (25/2/16)
BT escapes forced Openreach spin-off but Ofcom tightens regulations International Business Times, Bauke Schram (25/2/16)

Questions

  1. Why does BT have a monopoly and how might this affect the price, output and profits in this market?
  2. Ofcom’s report suggests that the market must be opened up and this would increase competitiveness. How is this expected to work?
  3. What are the benefits and costs of using regulation in a case such as this, as opposed to some other form of intervention?
  4. How might a more competitive market increase investment in this market?
  5. If the market does become more competitive, what be the likely consequences for consumers and firms?
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A payday inquiry

When people take out loans they typically do so to spend and with the UK economy in its current state, many would argue that this is a good thing. The ‘payday loan’ industry took advantage of the weak economy and the squeezed households in the UK and for the past few years, we have seen constant adverts that will appeal to many households. But, is the industry as competitive as the adverts would have us believe?

An inquiry into this industry has been on-going for some time, and it has now been referred to the Competition Commission, due to ‘deep-rooted problems with the way competition works’. For some, a payday loan is a short term form of finance, but for others it has become a way of living that has led to a debt spiral. Frank McKillop, policy manager at Abcul said:

There is a clear demand for instant credit and across the country we are increasingly seeing members who have debts with multiple payday lenders and a record of rolling over debts, or going to one payday lender to clear the debt to another.

One problem identified by the OFT is that customers have found it difficult to compare costs and this has led, in some cases, to customers paying back significantly more than they originally thought. Customers being unable to repay loans will ring warning bells for many people, with no-one wanting a return to the height of the credit crunch.

The OFT has criticized payday loan companies for competing not on costs, but on the speed of approval and using certain unapproved tactics as part of their advertising. The selling point of such companies is that you can have the money in a very short time period. However, the criticism is that this leads to loans being given to those who are unable to afford them. Key credit checks are not being done and with late night texts being sent to often financially vulnerable people, it is no wonder that complaints have been received. In a statement, the OFT said:

The competitive pressure to approve loans quickly may give firms an incentive to skimp on the affordability assessment which is designed to prevent irresponsible lending and protect consumers.

[the business models of companies were] predicated on making loans which are unaffordable, leading to borrowers paying far more than expected through rollovers, additional interest and other charges.

While payday loans are legal and there are many companies offering them, it is what they are competing over, which seems to be in question. The industry itself has begun to change its practices, providing more information to customers, only allowing loans to be rolled over three times and the potential to freeze repayments if the customer gets into financial difficulty. If more stringent checks are completed and hence timing does not become the only grounds for competition, then the problems above may become less significant. With the ongoing OFT inquiry into the practices of the payday loan industry and the continuing demand for such financing, it is likely that we will see much more of both the good and the bad that it has to offer. The following articles consider the investigation.

Webcasts
Balls warns against payday loans ‘blank cheque’ BBC News (27/6/13)
Payday lender investigation could be delayed by bureaucracy Telegraph, Steve Hawkes (27/6/13)
Payday lenders to face ‘tougher restrictions’ on advertising BBC News, Simon Gompertz (1/7/13)
Payday lending rates BBC News, Julio Martino and Stella Creasy (2/7/13)

Articles
Regulator to investigate payday loan industry Financial Times, Elaine Moore and Robert Cookson (27/6/13)
Q&A: Payday loans BBC News (31/5/13)
Payday loans: reining in an industry that is a law unto itself Guardian (27/6/13)
Payday loans industry to face competition inquiry BBC News (27/6/13)
Payday loans firms face competition inquiry Sky News (27/6/13)
Payday loans market faces competition inquiry Guardian, Hilary Osborne (27/6/13)
OFT refers payday loans to Competition Commission Scotsman, Jane Bradley (27/6/13)
Five reasons why we all need to worry about payday lenders Telegraph, Emma Simon (27/6/13)

OFT documents
Payday lending compliance review Office of Fair Trading (27/6/13)

Questions

  1. Into which market structure would you place the payday loans industry? Make sure you justify your answer.
  2. What is the role of the (a) the OFT and (b) the Competition Commission? Do these authorities overlap?
  3. What part does advertising play in this industry?
  4. To what extent is the payday loan industry a possible cause of another credit crunch?
  5. Why has the OFT referred this industry to the Competition Commission?
  6. To what extent are payday loans an essential part of an economy?
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A good or bad call?

The high street has changed significantly over the past 50 years and is likely to continue to do so over the next 50 years. Much of these changes have occurred as a result of technological developments. However, one thing that has remained largely unchanged is the telephone box. Although there are fewer of them, with the majority of people owning a mobile phone, city centre high streets still have their fair share of phone boxes.

With tastes constantly changing, products and services come in and out of fashion. But with technology constantly developing, products and services that were once needed have become obsolete, replaced by their more advanced substitutes. We’ve seen e-commerce develop, such that long-standing high street retailers have faced closure and the development of mobile phones and other communication devices have meant that the once essential phone box is now rather redundant. At least, in its traditional function. The Mayor of New York, Michael Bloomberg said:

New York is the most dynamic city in the world, and while technology has changed all around us, the city’s payphones have remained mostly the same for decades.

If we were to place the phone box on the product life cycle, it has certainly reached maturity and in many developed countries, even decline. But can extension strategies be used to create a new function for the phone box?

This is certainly happening in New York, where a reinvent challenge has been launched to help phone boxes adapt to technological innovation. Suggestions include using them as information sources, phone chargers, weather monitors and advertising boards. In the UK, phone boxes have even been fitted with defibrillators and are the first port of call for saving lives. But would this be enough to reinvent the phone box, whose numbers have fallen in New York from 35,000 to only 11,000?

Some say that the phone box is no longer relevant and while the idea of a ‘community hub’ remains appealing, the cost of maintaining them can be rather high. For others, the phone box is still essential, especially for those on lower incomes, who perhaps cannot afford what some people see as a necessity: a mobile phone. Are phone boxes, therefore, a means of ensuring access to communication for all socioeconomic groups? Also, perhaps for all age groups? As technology and tastes continue to change over the coming decades, the phone box will go in one of two directions: a revival or obsolescence. The following articles consider this.

New York phone boxes get new lease of life BBC News, Michael Millar (22/3/13)
Phone box in Ashwell is fitted with defibrillator to help save lives Rutland and Stamford Mercury (23/3/13)
Red Rutland phone box becomes 2000th life-saving hub ITV News, Pete Bearn (20/3/13)
The trashing of the iconic red phone box is one bad call Telegraph, Cristina Odone (11/3/13)

Questions

  1. Draw out the product life cycle. What examples of products and services can you find that fit in each stage?
  2. What are extension strategies? How do they help products that are in decline?
  3. When deciding whether or not to keep a phone box, what factors will be considered?
  4. How can phone boxes help to tackle inequality, especially of access?
  5. Are there any other products or services that fit into the decline stage? Which ones have had extension strategies applied and which have not?
  6. Do all products and services eventually enter the decline stage of the product life cycle? Can you think of any that haven’t? What has enabled them to survive?
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