What Do UK Mobile Contract Price Rises Tell Us About The Bottleneck On Justice?

Following news coverage on the role of profits in driving UK inflation, including the telecoms price increases first flagged by Fideres, questions have been asked in government and beyond as to whether UK competition agencies and regulators have done enough to run an inclusive competition enforcement policy. In response, the CMA has set out how it plans to change its priorities to protect consumers from the cost-of-living crisis.

For example, the Guardian (quoting Fideres) ran an investigation into parallel (mid-contract) price increases by UK telecoms and broadband providers, while the Financial Times (again quoting Fideres), questioned the implications of this conduct for the proposed Vodafone/Three merger.    

The Guardian’s findings reflected the same concerns that Fideres, had asked Ofcom to investigate in 2021, but which Ofcom choose not to examine. This is perhaps understandable given the mismatch between the need for investigations into anti-competitive conduct across the UK, and the resources available to undertake them. However, it also illustrates the pressing need to open up the scope for private actions by consumer (and worker) representatives and civil society groups against anti-competitive behaviour.

Telecoms firms have for many years complained about low rates of return in the UK. They have argued that their inability to keep up with the profit margins others were extracting from less competitive markets meant that consolidation was required for investment. However, regulators and independent economists find no reliable link between less competition and increased market investment, and we are all suffering the disastrous consequences of underinvestment by water monopolists. So, regulators have admirably done their best to block the repeated efforts to force through mergers.

When Fideres wrote to Ofcom in 2021, it appeared to us that the big mobile network operators had decided that, while mergers were not possible, “competition is for losers”, as Peter Thiel says. Instead of competing to offer better prices in the hope of winning customers, they seemed to have recognized that their interests were better served by mirroring one another’s price increases, and the introduction of terms and conditions that lock consumers into paying higher prices midway through their contract.

Industry spokesmen claimed the price hikes reflected cost increases across the market. The uncanny implication of their argument was that:

1. these cost increases were identical across firms, and
2. they could, somehow, accurately predict that future cost increases would continue to be identical and would exceed economy-wide inflation by 3.9%.

The industry also disingenuously suggested consumers could simply switch to firms offering better-value deals. In fact, none of the Big Four (or the smaller brands that they control) were offering deals without the same price ratcheting mechanism. Since these firms collectively accounted for more than 90% of the market, consumers’ options to switch to better deals were extremely limited (and they have only become more so since then).

The idea that the price ratchet was the result of synchronized, identical cost increases is hard to believe and should have merited a close look in 2021. Such an investigation might have explored whether or not this impressive foresight was achieved by some of them through serendipity (each independently reaching the same conclusion), price-fixing (agreeing amongst one another), or, by recognizing they would all make bigger profits if they chose to ignore the opportunity to increase sales by competing for customers and instead simply followed the price increases of others. It was disappointing that instead of investigating, Ofcom stood by and watched. It is however true that Ofcom, the CMA, and other competition regulators have limited resources to investigate the huge variety of potentially anti-competitive behaviour occurring in markets across the economy (the CMA has just one fifth of the staff that the Bank of England). In that context it is unsurprising that profit margins have risen over the last 43 years, that competition across the economy has deteriorated, and that large parts of the legal framework are, in practice, barely applied.

Against this backdrop the UK and EU sensibly created the opportunity for private enforcement by consumer representatives, civil society groups and small businesses to complement the efforts of under-resourced regulators. However, there remain large gaps in that regime which prevent those groups from challenging conduct that the regulators are unwilling or unable to prioritize. For example:

• Consumer representatives cannot in practice seek injunctions to temporarily stop potentially anticompetitive conduct or agreements.
• Consumer representatives cannot in practice take retrospective collective actions if the overcharge in the prices they paid were not in the hundreds of millions – e.g., in the excessive pricing of landlines to vulnerable elderly customers.
• Equally, citizens and/or workers cannot in practice take collective actions unless the estimate of the non-financial harm they suffer (to their health, privacy, wages, or the quality of the air they breathe) is not in the hundreds of millions.
• Finally, workers in the developing world that produce goods and services that are sold in UK markets have no opportunity whatsoever to challenge anticompetitive behaviour taken by firms competing in UK markets.  

The CMA will presumably be drawing on the OECD’s work identifying that competition agencies’ limited resources can be prioritized to ensure that competition rules can drive inclusive growth. However, unlocking the legal and practical restrictions on private enforcement, which deny consumers and workers access to justice for anticompetitive misconduct in UK markets, would help the agencies to keep pace. Removing this bottleneck would make a huge contribution towards making sure that UK markets work for everyone.