The increasing convergence of services, devices and content leads to a more complex digital market that affects both consumers and telecom providers. In this post, Claire Milne focuses on ideas about consumers and market transparency in the current telecom sector. Based on recent consumer reports and consultations, the author suggests that the increasing complexity in the telecoms market has led to more confused rather than empowered consumers.
By now it’s well understood that successful competitive markets depend crucially on engaged, active consumers. Regulators around the world are used to upholding the twin notions of consumer empowerment (enabling informed consumers to exercise choice) and consumer protection (minimising harmful side-effects of competitive markets for consumers). Both these notions in turn rely on “market transparency”. This is generally understood as the availability to consumers of all the information that they might need about products and services, the terms on which these are provided, and what to do when things go wrong.
It’s a traditional tenet of consumer policy and law that markets should be transparent. But what this should mean in practice is rarely spelled out, and even more rarely tested. The increasing complexity and technical nature of communications markets means that merely making all relevant information available is far from guaranteeing informed consumers. In fact, it may just lead to confused consumers, who are prone to making wrong decisions; or fatigued consumers, who opt out of comparison shopping. A recent Canadian Supreme Court decision (reported in an EU Consumer Consultative Group Opinion on consumer vulnerability, of interest in its own right) suggests that the traditional notion of the average consumer as “someone who is reasonably well informed and reasonably observant and circumspect” is outdated, and should be replaced by “someone who is credulous and inexperienced and takes no more than ordinary care to observe that which is staring him or her in the face upon first entering into contact with an entire advertisement”.
As an example, in the UK (and elsewhere in the EU), the issue of “net neutrality” has been dealt with largely by requiring traffic management policies to be transparent. But a recent report Lost on the Broadband Super Highway from Consumer Focus highlights that consumers have very limited understanding of the term “traffic management” or of any information that is provided in relation to it. Likewise, an Ofcom consultation on price rises in fixed term contracts discusses the importance of transparency at the point of sale of conditions relating to contract termination within the fixed term. It underlines that even if initial transparency is achieved, price rises during the contract may still be unexpected and potentially unfair; and goes on to discuss how information on price rises that do occur must be presented very clearly and plainly, along with information on opting to end the contract, to reach consumers in an effective way.
The road ahead: more remedies and less confusopoly
A recent Ofcom research publication on consumer information remedies recognises a slew of desirable characteristics for information provision, including that consumers are actually aware of the information; and that the information is accessible, trustworthy, accurate, comparable, clear and understandable, and timely. The report includes many examples of aiming to achieve such characteristics in other sectors, and discusses the pros and cons of different parties, including regulators, providing the information. While pointing to the unmanageable load of processing too much or too complex information, the report does not mention the simple approach that Jim Alleman put forward in his recent contribution to this blog – namely that companies should automatically put consumers on the tariff which would be cheapest for them, given their actual usage pattern. As Jim points out, this would be one way to redress the inevitable information imbalance between providers and consumers. Researchers at the University of East Anglia have recently made a similar, if less radical, suggestion in relation to energy tariffs in a paper Complexity and Smart Nudges with Inattentive Consumers. Ofcom’s report is published for discussion, and culminates not in any proposals for action, but in a large number of questions for those designing information remedies to ask themselves. Maybe we can see it as a tentative first step – or just a feeler – along the road towards bolder regulatory interventions such as Jim has proposed, to help real people get good deals out of this “confusopoly” in which we find ourselves.
This post first appeared on the LSE Network Economy Forum blog and is reproduced here with permission and thanks.
Transparency is key in this day and age, the majority of consumers and businesses don’t fully understand the impact of their telecoms buying decisions. In a world selling on features, most people will simply select the best from what they’re able to budget which will not represent the best value over time. It’s the responsibility of the service providers to offer solutions which are build on true requirements – either simplify or help buyers make decisions based on true usage data over time.
Thanks for this excellent post. A number of points are worthy of further discussion, and it would be worth looking at the further research implications of the radical policy solution you mention. These reports – and your post – do chime with some of the points made in my recent policy brief for this blog: http://www2.lse.ac.uk/media@lse/documents/MPP/LSEMPPBrief4.pdf. If you are serious about this, might it be worth looking at some case studies to explore how placing a duty on communications providers to put consumers on the cheapest tarriff would work in practice, as I think this would not always be simple.
One problem of course is that tarriffs often apply to different qualities of service and it is not always possible to determine whether two services are equivalent. And transparency is not only about price. How would your proposal impact for example on net neutrality policy? The Consumer Focus report rightly indicated the limitations of transparency, but how could a policy of deciding which tarrif were cheaper avoid a position on net neutrality policy?
:
“although increased transparency and consumer awareness may
trigger changes in consumer behaviour, this is
only likely to protect open access to content and
services known and valued by consumers, such
as well-established online players YouTube or
Facebook. It is doubtful how new online start-
up businesses could reap similar benefits” (Consumer Focus, 2013).