BT Group—written evidence (DCL0083)

House of Lords Communications and Digital Select Committee inquiry ‘Digital exclusion and the cost of living’

BT Group is the UK’s leading provider of fixed and mobile telecommunications and related secure digital products, solutions and services. We also provide managed telecommunications, security and network and IT infrastructure services to customers across 180 countries. BT Group consists of three customer-facing units: Consumer serves individuals and families in the UK via its brands BT, EE and Plusnet; Business which serves companies and public services in the UK and internationally; and Openreach an independently governed, wholly owned subsidiary, which wholesales fixed access infrastructure services to its customers - over 650 communication providers across the UK.

Executive summary

BT Group believe in the power of connectivity to change people’s lives. We welcome this inquiry into digital exclusion and the cost of living, as digital connectivity underpins more and more everyday activities. We have a strong track record in helping to tackle digital exclusion and our investments have ensured 90% of UK households are digitally included today. We have been leading the way on impactful measures for over a decade and other players are now starting to do more. We are ready to play our part in evidence based policies that support further progress.

In our answer to question 1 we set out the evidence base around the characteristics and drivers of digital exclusion. The largest cohort to be digitally excluded are older people – 90% of those not online are over the age of 55;[1] in the over-75s demographic, 26% of all households do not have internet access at home[2] with a larger proportion not having broadband. The evidence clearly shows that the combination of low skills and low will to adopt are the key driver for this group. There is also a smaller group of households without broadband, including households with children,[3], [4] where very low incomes are a key factor, although likely not the only factor. There is a third group that are currently digitally included, but are concerned about affordability.

The number of households having difficulties paying is rising in the current economic climate, although it is still relatively low at 6% of households (broadband, vs 15% of households reported difficulty affording pay TV).[5] Given the wider pressures on cost of living, BT Group considered its price choices for 2023 very carefully, balancing the financial and investment obligations that we need to fund with protecting our most in need customers, set out in our answer to question 2.

In BT Group’s view, policy around social tariffs needs to be rethought and enhanced in two key ways, one set out in our answer to question 3 (Government should consider funding for very low income groups) and one set out in our answer to question 5 (considering the policy goals, assessing the viability and impact on industry, and establishing a suitable sustainable model).

In question 4 we give our view on existing Government interventions. In our view various “pull” initiatives telling people about the benefits of digital life have taken us as far as is possible. What is now needed is a well structured and longer term strategic plan to address digital exclusion via the coming change in TV.

BT’s consumer division has provided a social tariff for many years to help those who are financially vulnerable with connectivity. In our answer to question 5 we cover the current uptake, awareness and drivers in the context of the highly competitive consumer market and excellent value that the UK currently sees before suggesting the necessary steps to enhancement.

We then cover civil society initiatives in question 6. BT Group supports a range of programmes, several in partnership with charities to build digital skills. Our Consumer division is focusing efforts on expanding the capability and partnerships to part or fully fund broadband for households that expert civil society partners identify as in most need.

Lastly, in our answer to question 7 we have reviewed measures employed across Europe to target low income households to improve their access to broadband at home.

While infrastructure rollout and renewal is an engineering and economic challenge, digital exclusion is a social policy challenge. Though the drivers are complex, it can be greatly improved through Government led coordination and intervention, that provides evidenced based support and interventions for those that need help.

1. What are the main causes of digital exclusion in the UK? What is the economic and social impact?

• Ofcom and BSG (Broadband Stakeholder Group) research shows that a circular lack of skills and will are the main causes of digital exclusion.[6]

• In BT Group’s view, whether or not an individual has a broadband connection at home that they can use is the best data marker of digital exclusion/inclusion. Ofcom’s latest data shows that at least 10% of households[7] or around 4.5 million people do not.

• In international comparisons the UK has more broadband connections per hundred people (41) than the USA (38), OECD average (34) and only 7 percentage points behind the leader (Switzerland at 48) or France at (46).[8]

• The largest cohort in this ‘digitally excluded’ group are older people – 90% of those not online are over the age of 55;[9] in the over-75s demographic, 26% of all households do not have internet access at home[10] with a larger proportion not having broadband.

• There is also a smaller group of households without broadband, including households with children,[11], [12] where very low incomes are a key factor, although likely not the only factor.

• Those who are digitally excluded will become increasingly disadvantaged economically and socially as more and more services and everyday interactions digitise.

BT Group agrees with the definition of digital exclusion offered in the call for evidence as a description of people without adequate access to digital technology.

Here we discuss the four drivers outlined in the call for evidence:

Not being able to access infrastructure that provide access to the internet (coverage)

Thanks primarily to Openreach’s early fibre to the cabinet (FTTC) builds, this is a cause of digital exclusion for a low and falling percentage of UK households. Over 97% of UK premises already have access to Superfast fibre at speeds in excess of 30Mbs.[13] This network enabled the huge shift in homeworking/remote working throughout the pandemic and consistently delivering IPTV services to millions of UK households every day. Users without access to superfast speeds will generally have access to Asymmetric Digital Subscriber Lines (ADSL) services, which still offers users the ability to access the internet with speeds of up to 24Mbps.[14]

Well over 99% of all UK premises have access to decent broadband speeds in excess of 10Mbs (the official USO service level) which provides sufficient connectivity to access websites and Government services and to participate in online activities such as shopping and banking. It can also deliver IPTV and other broadband services. The latest Ofcom report showing that the number of premises which cannot access these speeds is now expected to be less than 100,000 UK premises (C0.3%).[15]

BT’s Consumer division also offers 4G mobile connectivity from our EE network to over 87% of the UK’s landmass (which equates to over 99% of UK premises according to Ofcom), well ahead of our nearest competitor. EE’s 5G network area serves 60% of the population and was the first mobile network to reach 50% of the population. This mobile geographic coverage is set to expand in accordance with our network vision to offer 4G coverage to 90% of the UK geography by 2028 and we intend to deliver 5G to 90% of the UK’s landmass by 2028.

BT Group announced in May 2021 that, following the regulatory clarity provided by Ofcom’s Wholesale Fixed Telecoms Market Review (WFTMR), coupled with the Government’s super-deduction tax relief, and the positive outcome from the recent 5G spectrum auctions, we were able to increase and accelerate our fibre to the premises (FTTP) build plan from 20 to 25 million homes and businesses.

This means that over 80% of UK premises will have open access to Gigabit capable full fibre from Openreach alone. Openreach has already built full fibre to over 9.6 million premises to date as part of this plan. Openreach has also committed to delivering full fibre to 6.2 million premises - with 3 million passed to date - “in harder to reach” parts of the UK – delivering a balanced build to benefit rural communities as well as larger urban areas. There are also up to 100 alternative network operators in the process of building full fibre networks across a range of different areas in the UK.

Broadband uptake

As UK coverage of good quality connectivity reaches into the final three per cent, attention is rightly turning to uptake. The good news is that this is climbing, as the Ofcom charts below show:[16]

In BT Group’s view, whether or not an individual has a broadband connection at home that they can use is a strong data marker of digital exclusion/inclusion.

Ofcom’s data shows that broadband uptake rates have climbed from 3% of households in 2003 to 72% in 2013.[17] Ofcom’s latest data shows that in the following 10 years uptake continued to climb, but at a slower rate. Today, 90% of UK households have broadband, but around 10%[18] or around 4.5 million people do not.

The digitally excluded are a well-surveyed group. Ofcom research shows that lack of interest followed by skills are the main drivers of digital exclusion (see chart below).

The defining characteristic of those households without home internet access is age: Of the group that are not online the very large majority - 91% - are over the age of 55[19] and in the over-75s demographic, 26%[20] of all households do not have internet access at home.

ONS and Ofcom data differs slightly,[21] but both support the overall trend that the older the age cohort the higher the proportion not online: According to ONS data, 10% of 55-64 year olds have not been online in the last three months and 24% of UK adults aged 65 and older have not been online in the last three months.[22]

According to Ofcom’s data, 13% of UK adults did not use the internet, unchanged since 2014, and three quarters of them say that nothing would encourage them to go online in the next 12 months.[23] Further detail in Ofcom’s data includes:

• Those aged 55+ or in the DE socio-economic group remain less likely to go online.

• 45-54s: 7% do not use the internet

• 55-64s: 17% do not use the internet

• 65-74s: 30% do not use the internet

• 75+: 51% do not use the internet

Research from the BSG (Broadband Stakeholder Group - now renamed the Digital Connectivity Forum),[24] like Ofcom’s show that a circular lack of skills and will are the main drivers of digital exclusion for older people: in this group many have finished their working lives without ever using a computer.

Being unable to afford a connection package

While there is a group of very low income households for whom this is a challenge, as our response will unpack, especially in our answers to questions 3 and 5 this is rarely the only driver of digital exclusion and, for the largest group not online, is not the driver.

There are 1.5-2m very low income households (on zero income universal credit) where their current income does not cover essential needs (housing, food, energy and water). Therefore these households cannot afford broadband even at a social tariff price (nor much mobile data).

For the rest of the market, connectivity and especially broadband in the UK offers excellent value, with average prices that are 40% lower than in the USA.[25] Broadband costs are a relatively low share of household spend compared to water or energy Bills. Our products and services represent an average of 3.8% of household bills (which has been falling over the past five years).

Not having access to a device such as a smartphone, laptop or tablet which can connect to the internet

BT Group is a connectivity company so we will keep our contribution on this topic short. Nevertheless, difficulty affording or being able to use a suitable device is a key contributor to digital exclusion.

It was the driver behind the figures on the numbers of school children that could not home school during the pandemic, with more than one million children lacking an adequate device compared to 200,000 – 400,000 households with children that were not online (ONS[26] and Ofcom[27]). The Government distributed 1.3 million laptops to school children during the pandemic[28] with some schools and campaigners saying still more were needed. In contrast, the industry effort to provide free mobile connectivity had take up of a little more than 30,000.

In studies, those excluded and concerned about affordability cite the cost of devices as often as the cost of connectivity.[29] And this masks the wide variation in the cost and capabilities of devices.

During the pandemic the NHS Covid 19 app did not work on iPhone 6 or earlier devices which could not support iOS 13.5, released in May 2020 Android devices needed Marshmallow version 6.0 released 2015.[30] The NHS team established that the groups that most needed to move around for work during the pandemic, including shop workers and healthcare workers on lower incomes were more likely to have older devices or lower cost newer devices which did not support the necessary software.[31]

How long devices continue to be supported by manufacturers/operating system providers and app providers is currently driven by market forces which focus efforts on newer premium and middle market models (with more affluent users).[32]

The speed with which devices can become inadequate as operating systems and apps move on, and the cost for some households which cannot afford to upgrade to a new and expensive device every year or two are both drivers of digital exclusion.

The Lloyds Digital Index further highlights the skills difficulty of using different devices and platforms. While large manufacturers understandably want to make their own decisions, innovate and differentiate, the complexity of moving between the norms of different interfaces is a significant barrier for many.[33]

The solution suggested is often skills development. Policy makers may also want to consider some basic requirements around inter-operability, and standards around how long operating systems and essential apps should be supported, with the latter also having a sustainability aspect.

Not having the skills to use a device/navigate the online environment/choosing not to use the internet/learn the necessary skills

As our response will show, this circular set of issues around skills and will, especially for a significant proportion of older people, is the primary driver of digital exclusion in the UK.

As discussed in the section on uptake, high quality research from Ofcom, the BSG/DCF and Lloyds Digital Index all highlight a similar set of barriers for those not online.

The most recent Lloyds Digital Index[34] noted that of those people least online (have not used the internet in the last three months) 86% ‘say it is their personal choice to be offline’. However, at least 10 per cent of this group ‘have someone do something online for them, that they wish they could do themselves’.

And when asked about their reasons for not using the internet, those given that rank most highly point to difficulty with skills (58% say ‘the internet is too complicated to use’) and fear of being online (62% say ‘I’m worried about my privacy and security’; 59% say ‘I’m worried about having my identity taken’; 57% say ‘I’m worried about the way organisations use my data’).

These reasons all far outweigh concerns about price (36% say ‘it is too expensive’) and it is not surprising that a group that find the internet too complicated to use, and have fears about doing so, do not consider it good value for money.

However, a quarter of this least online group say that they want to use the internet, but don’t know where they can get help (24% say ‘I want to but don’t know where I would get help’).

Summary

As the chart on page 1 illustrates, the evidence shows there are three different groups the inquiry should consider and that we will address throughout the rest of our response. Each group has different characteristics and drivers which should inform impactful policy formulation to support them to become or remain digitally included.

Two groups, those on the very lowest incomes and the lack ‘skills and will’, group of mostly older people are currently the most digitally excluded.

We estimate 10 – 20% of the lacking skills and will group may also struggle to afford connectivity, while our trials have suggested that at least 70% of the low income group need support with skills and motivation as well as the cost of connectivity and suitable devices.

The third group is currently digitally included in that they have an existing broadband service. However, they are concerned about affordability. BT’s Consumer division is seeing a significant number of existing broadband customers reducing their broadband costs by moving to our social tariff BT Home Essentials while the rest are new customers.

A much lower number of our new social tariff customers are new to broadband entirely because, as set out here, for most of those digitally excluded, cost is not the key barrier; while for the group where it is a factor, current social tariff prices are still out of reach. We discuss this in more detail in our answer to question 3b, below.

Lastly, and shown in the largest bubble on the chart on page 1, there are more than 10 million UK adults that lack essential digital skills. This group is made up of both the digitally excluded groups (very low incomes and lacking skills and will) but also includes several million more people who are somewhat digitally included but could get more out of the digital world with better skills.

Economic and social impact

The economic and social impact of digital exclusion is becoming more significant in an increasingly digital world.

If an individual is not online it impacts their access to employment/increased earnings, education, public health, entertainment, government services/welfare benefits, reduced bills/retail transactions, staying in touch with family/friends, time savings, online advice/guidance.

As everyday services such as seeking a job or booking a GP appointment move online, the risk is that this becomes a spiral with digitally excluded groups becoming further excluded from both good quality services and life opportunities.

The Lloyds Digital index gathers and collates data that evidences these points, for ‘people with high digital capability are twice as likely to have improved their financial capability in last 12 months’ and ‘digital capability has a positive impact on personal finances…. Those on a lower income manage their finances more effectively (such as avoiding credit card fees and not relying on their overdraft) and those earning less than £20,000 per year, are more likely to reprioritise their day to day spending.’[35]

Yet they are in high need of state support in their current circumstance pointing to high impact outcomes from helping them to get connected and engage with opportunities. Whereas not supporting them effectively risks a wider negative impact on economic growth, and social cohesion. The Good Things Foundation July 2022 report ‘The economic impact of digital inclusion’ highlights that by “2028, we’ll be missing out on almost £22 billion of value as a direct result of digital exclusion.”[36]

2. How has the rising cost of living affected digital exclusion?

1. To what extent does digital exclusion exacerbate cost of living pressures?

• Digital exclusion intensifies cost of living pressures with research showing that the digitally excluded miss out on online deals and prices that can cost households £286 per month.[37]

• The number of households for whom broadband is becoming more difficult to afford is rising in the current economic climate, although is still low at 6% of households (for comparison, 15% of households reported difficulty affording pay TV).[38]

• Given the wider pressures on cost of living, BT Group considered its price choices for 2023 very carefully, balancing the financial and investment obligations we need to fund with protecting our most in need customers. We set out an overview of the context for our decisions here.

• BT’s Consumer division have best in class products and support for customers where costs are an acute problem and we provide a summary of that support and how we support customers in payment difficulties and the current patterns we see below.

Pricing

Ofcom’s Fairness agenda covers support for vulnerable customers, reliability, clarity and ease of signing up to and leaving services as well as making sure customers get a fair deal which is right for their needs.[39] We signed up to the commitments Ofcom developed in 2019 and we set out a new approach to pricing in broadband as we did so.

This moved our Consumer division away from the common practice for broadband providers to change prices in an unstructured way, sometimes more than once a year and customers had the right to leave at the point of price change.

Following conversations with Ofcom, we introduced our new approach of annual, contracted and transparent price changes in broadband, following the approach we have taken in mobile since 2013.

These are implemented at the start of April each year, and are based on the December CPI figure published by the Office for National Statistics in mid-January plus 3.9%. We make this clear in order journeys and terms and conditions when customers sign up or renew their contract.

In times of low inflation it has benefitted customers as our price change then was lower than those of other operators that continue to take a more ad hoc approach.

This year, December CPI was 10.5% and so price rises for standard customers are 14.4%.

Aware that this is a notable increase we reviewed our options thoroughly and proceeded, with mitigations, for the following reasons:

1. Our own costs are rising significantly;
• Our operating costs are going up significantly, many by more than inflation, for example our energy prices +80% year on year (yoy). Home Hubs (the routers we provide to customers) by +20% yoy, and many of our other costs are rising rapidly too, such as logistics and network equipment.

• We also have additional costs imposed on us, such as £500m to remove Huawei telecoms kit, from our core network.

• At the start of 2023, we awarded a cost of living pay rise of £1,500 for all UK colleagues who earn £50,000 or less. This covers all frontline staff and 51% of managers; in total, 85% of UK based BT Group colleagues. Including the pay rise we awarded in April 2022, the total percentage pay rise for the lowest paid this financial year is over 15%.[40]

2. For most of our customers it is a manageable increase: our products and services represent an average of 3.8% of household bills (which has been falling over the past five years). On average, EE and BT customers received a monthly increase of £3.50, or £42 a year in 2022. In 2023 the average increase will be just over £1 per week.

3. And our customers are using more and more data each year: mobile data usage increases by almost 50% annually while speed and other quality metrics like reliability have also improved. For comparison, the energy industry is seeing an average price change of 80% while consumption declines.

4. CPI+3.9% reflects the level of investment we need to make within our business to continue our major investments in networks and service which includes meeting the aforementioned customer demand for data while also protecting vulnerable customers suffering from financial hardship or digital exclusion. Our customers expect this as reliable high quality connectivity continues to underpin more and more of our lives and economy.

We are aware that for our customers on lower incomes the very significant cost increases on other products and services they face may make connectivity harder to afford. To mitigate this, we have protected 3 million of our most vulnerable customers from these price rises, seeking to best balance the range of obligations we face, as follows:

We have 180,000 customers on broadband social tariffs and a further 130,000 on our voice only social tariff (i.e. landline only, this is no longer available to new customers). Prices on all of these have been frozen for several years. The 180,000 number is included in Ofcom’s reports on total numbers on broadband social tariffs. We discuss social tariffs in more detail in our answer to question 5.

We have around 700,000 further voice only customers where our market research tells us they are more likely to be older and/or lower income. This makes up the remainder of the fixed line group we have protected from this year’s forthcoming price changes; some are price frozen; some have a discount on the standard increase.

All BT, EE and Plusnet broadband customers that are eligible for our broadband social tariff (Home Essentials) can move to it penalty free.[41]

We have a further 2 million mobile customers mostly on pay as you go (PAYG) where we have also frozen prices this year.

Our support for customers in payment difficulties and the current patterns we see

We support customers in payment difficulties by arranging payment plans and/or changing products, as appropriate. For example, we offer a range of tariffs only available to customers in collections to keep them connected while we work with them to resolve their payment difficulty; extended time to pay their bill including manageable instalment plans to spread the debt repayment; and capped payment arrangements to stop further debt being incurred. We are also building into our key systems vulnerability flags to identify customers who may struggle or need more support in paying their bills. We believe our approaches to supporting our customers are industry leading.

Customers that are experiencing or may have payment difficulties are engaging with us and currently more of them are mentioning cost of living issues when they do so. Over the last 12 months our consumer business has seen a gradual uptick in customers with payment difficulty, but this remains lower than pre-Covid. Over the last few months we have seen a small increase in the number of customers requesting payment arrangements with a view to repaying their debt over a number of months, although the overall number of customers needing this support remains a very small percentage of those that have had a late or missed payment. Our disconnection rate for those customers entering collections likewise is very low.

2. What are the long term implications of this relationship?

• The most recent Lloyds Digital Index shows that digitally included individuals on low incomes are better able to manage their finances, and have better access to employment opportunities which could improve their incomes.[42]

• Given the Government requires new applicants to universal credit to claim online[43], policy interventions which ensure claimants are digitally included, providing connectivity, a suitable device and skills support as needed, could create a virtuous circle of outcomes: both to best enable these individuals to manage their finances in the near term, and to get or improve their employment prospects and thus increase their incomes.

3. What are the obstacles to greater digital inclusion? Where is policy intervention likely to have the greatest impact over the next 12 months and 5 years?

• The greatest obstacle to digital inclusion is a circular lack of skills and will, especially within older aged groups, and the current patchy provision of digital skills support and encouragement or incentives to learn these skills, as set out in our answer to question 1.

• For some very low income – on zero income universal credit – households, the cost of connectivity is a factor. As their current income does not cover essential needs (housing, food, energy and water). Therefore these households cannot afford broadband even at a social tariff price (nor much mobile data).

• BT Group believe that Government should fund for this group, or otherwise increase their overall incomes so that they can afford connectivity.
• BT Group has run pilots to offer fully funded broadband to low income households and found uptake has been difficult to achieve, indicating that lower or fully funded connectivity is not the only obstacle that needs addressing to support digital inclusion.

• Below, and in our answers to questions 4 and 5, we set out four ideas for impactful policy interventions, especially around social tariffs which need to be rethought or enhanced in two key ways, one described here and one in our answer to question 5:

Policy intervention - the near term:

Policy intervention 1: improving skills support

• Central Government should develop and publish a new digital strategy. This should ensure the adequate provision of free teaching and support to gain digital skills for those most digitally excluded (The Fabians 2022 report “Bridging the Divide” has good ideas here).[44]
• For those groups who are less confident about learning digital skills, research shows that their preference is to learn informally through friends and family, and face to face.[45]

• Likewise, studies show that people not online are more likely to engage in gaining new skills if they can see the personal relevance to them – e.g. accessing NHS services when trying to make a GP appointment.[46] Therefore, support should be offered at moments of relevance or motivation e.g. when seeking a GP appointment, or in a bank.

The Government’s most recent digital inclusion strategy was published in 2014.[47] In 2022 DCMS published a digital skills strategy, but this did not cover the interrelated challenges of driving uptake of connectivity and devices, nor that some low income groups need support with costs and well as skills development.[48]

Policy intervention 2: enhancing social tariffs (i) – reaching the group that need them most

The current approach is not reaching those on the very lowest incomes, and this group need greater policy-maker attention.

There are around 1.5 - 2 million (2% - 4% of households) on zero income universal credit. According to the DWP’s own data and analysis, incomes in this group are so low that they could not afford to cover their housing, energy and food bills even before the cost-of-living crisis hit.

So existing social tariffs, the cheapest of which is £12 a month, are still out of reach: for this group the price of connectivity is a barrier, if not the only barrier to being digitally included. And, given the cost of living crisis the number of households in this position is growing.

Yet they are the group that has the most to gain from being connected: to find cheaper deals for products and services, as well as job hunting and engaging with Government services (universal credit itself asks applicants to claim online).

Providing connectivity does have per customer and per unit costs, and industry cannot sustainably drive the price lower. Therefore, to get them connected Government should consider the case to step in and fund their connectivity costs, or to increase their overall incomes so that connectivity is within affordable reach. We provide an overview of other countries’ approach in our answer to question 7.

Lastly, when participating in small scale pilots of fully funded broadband for households identified in most need, we found that uptake is still difficult to achieve i.e. that where cost of connectivity is the first barrier, it is very often not the only one. None of the pilots achieved uptake above 30% at the end of the first year of operation.

A BT Group study of these pilots suggested that lack of trust in the institution offering the service (in this case a school), pessimism about the future (one respondent said they didn’t want their children getting used to something they knew they couldn’t afford at the end of the funded year), language barriers (some families offered support did not have an adult English speaker in the home) and unstable living circumstances (a broadband service cannot be installed in temporary accommodation or an unregistered address) were also barriers. These all point to digital exclusion operating as an expression of deeper barriers of poverty and societal exclusion.

The pilot which has the best uptake rates of fully funded broadband is operated by the charity Buttle UK, a charity dedicated to those living in financial hardship and dealing with multiple social issues. Its approach is for a key worker to build a relationship with the household they are supporting, with a remit to support on any or all the issues they are facing. In that context, funded connectivity is offered if appropriate, with a person already in place to support through the sign up and set up process, and to find appropriate resources to develop skill, if necessary.

We set out our ideas for policy intervention in the longer term in our answer to question 4, below

1. To what extent would these changes help unlock economic growth?

Our views on this are set out at the end of our answer to question 1.

4. How effective are Government initiatives at addressing digital exclusion? What further action is needed, and what should be done to provide offline access to services?

Policy interventions and government initiatives

• Recent Government engagement and initiatives have focused on existing customers and the cost of living crisis.

• As we set out in more detail in our answer to question 3 above, there are no Government programmes to help those who cannot afford connectivity at all.

• Various “pull” initiatives telling people about the benefits of digital life have taken us as far as is possible.

• As the Fabian’s report “Bridging the Divide” describes, a variety of initiatives have come and gone from central Government, but all too small scale or short term and underfunded to have impact.[49]

• Yet digital exclusion is a barrier to the further or full digitisation of public services, especially the NHS, given the number of older people – also the cohort with the highest healthcare needs – that cannot engage with digital healthcare services.[50]

• Truly addressing digital exclusion requires the kind of strategic direction that only Government can bring. BT Group believes that what is now needed is policy leadership of a similar ambition to that which over the last 5 – 10 years has enabled the ongoing fibre build and upgrade in the UK: a carefully thought through “push” programme which supportively motivates older aged groups to get and use broadband and connectivity, and funds broadband access for the very lowest income households that cannot afford it.

Recent Government initiatives – supporting existing customers through the cost of living crisis

Following an industry wide meeting with the then Secretary of State for Digital Culture Media and Sport in June 2022, a set of voluntary commitments were agreed.[51] These were:

• All providers commit to supporting their customers who may be struggling with the cost-of-living and to treat them with compassion, understanding and as individuals.

• All providers commit to supporting customers struggling with their bills and to offer ways to keep them connected, such as allowing them to move to cheaper packages without charge or penalty, or agreeing manageable payment plans.

• All operators commit to continue to protect the connectivity of their customers known to be vulnerable as a priority.

• Providers - supported by Government - commit to take steps to raise awareness of low cost products to those claiming Universal Credit.

• Mobile providers commit to considering more ways to help their customers, including exploring tariffs, options to improve existing low cost offers, and increasing promotion of existing deals.

BT’s Consumer business welcomed these and the Government’s wider cost-of-living plan. The most impactful of these was the ask to enable existing customers to move to cheaper packages penalty free (including social tariffs for operators that offer them).

BT’s Consumer business has delivered on all the voluntary commitments, which is not the case for all operators[52]. In particular, all BT, EE and Plusnet broadband customers that are eligible for our broadband social tariff (Home Essentials) can move to it penalty free. We believe the voluntary commitments should have taken into account bundled services, which we cover in more detail in our answer to question 5.

Policy intervention – longer term (the next five years):

Policy intervention 3: develop a well structured strategic plan to address digital exclusion via the coming change in TV

• BT Group believes the Government needs to start planning now for the inevitable transition away from terrestrial TV broadcasting (and satellite TV) onto all TV viewing distributed via the internet. A well structured strategic plan could use this shift as the catalyst to help older, tech-averse households using IP connectivity and in turn enable the digitisation of more public services.

• We were pleased to see that the Government’s recent TV Broadcast White Paper touched on these issues, although we think it is vital for policy makers to move faster than the timetable set out there (for Ofcom to review things by end 2025).[53]

• There is a big policy opportunity to solve several challenges (digital upgrade and inclusion, future of the public sector broadcasters (PSBs), digital engagement with public services), in one joined up programme.

Once a service is fully digital policy makers will need to support those with significant barriers to using online services for example providing help from a carer or support worker to access the service. Policy makers may also need to consider the continuation of an offline route to access services for those who will never get online.

5. How well are existing industry initiatives (for example cheaper internet tariffs) addressing digital exclusion?

• While the largest proportion of the market can afford existing products (and price rises), BT’s Consumer division have best in class products and support for customers where costs are an acute problem (details are in our answer to question 2a).

• We currently support nearly 3 million customers with subsidised or discounted tariffs[54] and we have industry leading debt and collections policies and the lowest disconnection rates in the sector (details are in our answer to question 2a).

• BT’s Consumer division has provided a social tariff for many years to help those who are financially vulnerable with connectivity. We relaunched our social tariff as a fibre broadband offer in July 2021, naming it BT Home Essentials. It is one of the best offers in terms of reach, speed, price, eligibility and end terms.

• BT’s Consumer division have over 85% of current broadband social tariff customers, though a wide range of other operators have launched alternatives recently[55] with monthly broadband prices ranging from £12 - £20 and we welcome this.

• Policy around social tariffs needs to be rethought. There are two issues with the status quo:

• First, and as set out in our answer to question 3, for some very low income households – on zero income universal credit – the cost of connectivity is a factor. As their current income does not cover essential needs (housing, food, energy and water). Therefore these households cannot afford broadband even at a social tariff price (nor much mobile data).

• Second, uptake. Uptake rates more than doubled in 2022 and are now closing in on the proportion of households reporting to Ofcom that they are struggling to pay their broadband bills (3.2% and 6% respectively).[56] However low uptake of social tariffs compared to the numbers eligible (6 million households or more depending on which benefits are included in the criteria)[57] are often commented upon.

• Low uptake may be, at least in part, because connectivity and especially broadband in the UK offers excellent value, with average prices that are 40% lower than in the USA.[58] Broadband costs are also a relatively low share of household spend compared to water or energy bills. Other possible reasons include customer perception and bundled contracts that are left out of policy maker interventions.

• In our answers to questions 3 and 4, we set out three ideas for impactful policy interventions. We set out the final policy idea (and the second around social tariffs) which need to be rethought or enhanced in two key ways.

Existing industry initiatives (cheaper internet tariffs known as social tariffs)

BT’s Consumer division has led the market on social tariffs. For a number of years we were the only operator offering broadband social tariffs to financially vulnerable customers: BT Basic launched in 2009 as a phone line service and BT Basic broadband launched in 2015. It only in the last few years that other operators have started introducing their own social tariffs.

In 2021 BT’s Consumer division was the first operator to introduce a discounted fibre broadband tariff, BT Home Essentials, for those on Universal Credit, Pension Credit (Guarantee Credit), income related Employment and Support Allowance, income based Jobseeker’s Allowance and Income Support. Last year we launched EE Basics mobile with the same eligibility offering mobile data and calls at £12 a month. These were exempt from our forthcoming price rise.

To launch Home Essentials BT’s Consumer division funded the development of our own API (application programming interface to verify whether customers are eligible) in partnership with the Department of Work and Pensions (DWP). This project started before the pandemic and took more than a year to build and test. It enabled BT’s consumer division to launch a fibre social tariff a year ahead of other operators as it took a further year for the DWP to develop an industry wide verification system.

BT’s Consumer division now have 180,000 customers on broadband social tariffs – this number is included in Ofcom’s reports on total numbers of customers on broadband social tariffs. We have a further 130,000 on our voice only social tariff (i.e. landline only, this is no longer available to new customers). Prices on all of these have been frozen for several years. We have over 85% of current broadband social tariff customers, though a wide range of other operators have launched alternatives recently[59] with monthly broadband prices ranging from £12 - £20 and we welcome this.

As described in our answer to question 2 this our social tariff customers are just part of the nearly 3 million customers BT’s consumer division support with subsidised or discounted tariffs.

Driving uptake

We are experts in telling relevant customer segments about the products that are right for them and we advise that for most people[60] fixed connectivity is by far the most cost effective way to meet their data, speed and reliability needs.

We have prioritised targeted communications and marketing to the right groups, and other practices such as search engine optimisation that reflect actual customer behaviour. We are confident that our awareness and promotion strategy is the right one because we are seeing strong uptake of our BT Home Essentials social tariff:

• We have seen nearly 10% of our new customers taking Home Essentials in recent months.

• The number of customers taking Home Essentials has doubled in the last year because of proactive conversations with customers we believe are eligible.

• We have 85% market share of social tariffs while some broadband operators do not offer one at all.[61]

We can confirm, as asked at oral questions, that if a customer searches for ‘cheap broadband tariff’ via Google, they will find the round ups from Ofcom and consumer sites such as Money Saving Expert, Uswitch and Which. If a customer searches for ‘cheap broadband tariff BT’ then the direct link to our sign up page for Home Essentials is the first search result.

Existing industry initiatives - uptake and awareness of social tariffs

One in ten households that are both eligible and aware of social tariffs sign up to them [62]. Since the BT Home Essentials customers journey is easy and we enable eligible customers to move to these products whenever they choose, it is likely there are factors other than awareness a play.

Factors that may be holding back uptake

UK connectivity, especially broadband, offers excellent value

UK retail connectivity markets are highly competitive which drives great value pricing for consumers. Average broadband prices are 40% lower than the USA. The UK was fourth in Europe overall across broadband connections for weighted average prices, and fifth for lowest available prices, both down one place compared to 2021. The UK also had the lowest standalone mobile prices across Europe and the cheapest weighted average and lowest-available prices for standalone mobile services in 2022 in Ofcom’s 2022 pricing trends report[63] (also the case in 2021).

Worries about quality of service

Our own market research with eligible groups showed that if the price of a social tariff is too low, potential customers assume it cannot be a good enough quality service, no matter the actual facts of speed and reliability provided.

Which? similarly found that potential customers were concerned about speeds.[64] Ofcom have outlined expectations for social tariffs on speed and other standards,[65] and we have designed BT Home Essentials to meet these, which other operators’ social tariffs do not.

Interaction with pay TV services

We also found that potential customers want to bundle their broadband with other services such as TV, which some social tariffs do not allow. BT Home Essentials does support this, precisely because eligible customers told us that was what they wanted.

The current regulator and Government approach on broadband and phone around terms (especially exit terms) affordability and inclusiveness tend to exclude (paid for) TV out. For example the summer 2022 voluntary commitments, in which the Government asked operators to let customers in payment difficulties change package without financial penalty left out TV[66] and in autumn 2022 a senior Ofcom official’s speech to industry conference Connected Britain, on consumer issues didn’t mention TV.[67]

This is despite a change in the regulation following the introduction of the European Electronic Communications Code (EECC)[68] in December 2021.[69]

The policy reason given is that TV is more discretionary/a luxury. However, our own research into this showed that customers rank TV as their second most important service after broadband, and that ‘TV is a vital service for some vulnerable consumers – meaning that they may feel forced to accept unfair terms’. For example we found that other providers charge out of contract (OOC) and/or tenured customers more.[70]

We therefore believe that policy makers should look more closely at the pay TV market, both the regulation and norms in those markets, and consider what adjustments would better support digital inclusion as well as wider customer fairness issues.

How could they be enhanced?

• BT Group believes that social tariffs can be enhanced in two key ways, one set in our answer to question 3 (Government should consider funding for very low income groups) and one set out here: considering the policy goals, assessing the viability and impact on industry, and establishing a suitable sustainable model.

• Of other UK industries with a social tariff, telecoms is the only one that does not have at least one impact mitigation of: industry standardised terms,[71] public funding, industry levy funding or narrow eligibility. See industry comparator chart below:

Industry comparator:

UC = universal credit

Policy intervention 4: enhancing social tariffs (ii)– eligibility and the impact on industry

How large the group eligible for social tariffs is, or should be, is not settled either for policy makers or industry. Ofcom often uses the current number of households on universal credit (4.9 million in November 2022) as a proxy for numbers eligible[72] while others say 6 million households are eligible[73] and the new DWP verification system is even wider still.[74] We estimate 7.6 million households are claiming one of the qualifying benefits.[75]

If policy makers want to drive many more of those eligible to take up social tariffs, then the impact on industry would need to be assessed. As every 100,000 social tariff customers costs BT’s consumer division £16.5 million per year, taking a 30% market share of a social tariff market of 6 million customers would cost BT’s consumer division £330million per year, and could cost the industry combined as much as £1billion per year. If these levels of uptake are pursued, public funding to mitigate the revenue impact on industry should be considered. Prior to this there needs to be a consistent and settled approach on eligibility and standardised terms.

On the LSE Media blog in 2022 the managing director of the price comparison site Choose proposed that the 20% VAT charged on all broadband bills could be used to generate a public funding pot of £2.1 billion a year to support social tariffs and address digital exclusion.[76]

Some campaigners (and other operators) have suggested that Openreach pricing is ‘the problem’ when it comes to pricing social tariffs. This overlooks two things:

First, Openreach already waive connection fees for low income households new to broadband and eligible for social tariffs[77] and that otherwise Openreach pricing is regulated by Ofcom to support network rollout and upgrade.

Second, that price is not the primary barrier for the largest cohort digitally excluded, and likely not the only barrier for other digitally excluded groups too.

The Wholesale Fixed Telecoms Market Review 2021–26 sets out regulation including of Openreach pricing, until 2026 but also recognises that ‘the investments being made by all network operators in gigabit-capable networks have longer payback periods. While our future decision will depend on the circumstances that exist when we carry out our next reviews, we are setting out a long-term path for approaching future decisions.’[78]

It further continues:

• ‘We currently do not expect to introduce cost-based price controls until at least 2031. Moreover, we would expect the same wholesale access prices to apply throughout the UK, as we expect ongoing investment, commercial and state funded, in both Area 2 and Area 3 throughout the period to 2031.

• Beyond 2031, if competition and investment are still in the process of emerging, we would expect to continue to regulate in a way that supports the continued development of competition and investment.

• Finally, if there is a need to move to cost-based regulation in the future, we will honour the fair bet principle. In setting controls, we would expect to allow BT to keep the upside (i.e. returns in excess of its cost of capital it has earned up to that point), as well as ensuring it can earn its cost of capital going forwards. This means that BT would have the opportunity to earn a return above its cost of capital over the whole fibre investment cycle.’

One of the key benefits of the WFTMR is the long-term regulatory certainty it provides to the sector. Regulatory certainty is important because of the long payback periods for investment in digital networks. Ofcom set out a long term view for how they would approach regulation as part of WFTMR which was a critical component underpinning Openreach’s full fibre investments, as well as that of competitors. Making changes to this framework could have unintended consequences for the sector’s collective ability and appetite to continue investing in upgrading digital connectivity.

6. How effective is civil society at supporting digital inclusion? How could this work be enhanced, and what is the appropriate balance between civil society and Government intervention?

• There is a large and energetic group of campaigners and charities working on this issue.

• While that is welcome, we regret that we see plenty of misunderstandings and misinformation, such as conflating affordability of mobile data (always the most expensive way of buying connectivity) and broadband (vice versa the most affordable way to buy connectivity).

• While there are industry programmes running to donate mobile SIMs and data, we believe this is a short term rather than a long term solution.

• BT’s Consumer division is focusing our efforts on expanding the capability and partnerships to part or fully fund broadband for households that expert partners identify as in most need.

• This is because, for anyone in a stable living situation, fixed broadband connectivity is the most impactful to the recipient, cost-effective and sustainable way to provide the connectivity, speed and reliability needed.

The Fabian’s report “Bridging the Divide” provides an assessment of the effectiveness/role of civil society/voluntary organisations[79] which BT Group agrees with: these organisations play a vital role in providing support to the very excluded groups. However, the provision of digital inclusion support is fragmented with many small players often performing overlapping activities.

We agree with the recommendation in “Bridging the Divide” that “Government should ensure everyone who needs it has access to free digital skills support in their community … government must look to strengthen local referral pathways for support and training (see recommendation 5), and ensure that organisations delivering digital skills provision in communities are able to access funding to boost their scale and capacity”. [80]

Government could provide leadership by carrying out an evidence-based strategic review to identify and back those skills and awareness activities that are scalable and can make a real difference. This would help to reduce the duplication of activities and resources. Fewer larger scale activities would help increase capability to have a greater impact to support digital inclusion.

Voluntary organisations should continue to play a key role in helping to identify those who are the most digitally excluded referring them for support or providing that support especially to build digital skills themselves.

BT Group funded programmes

• Recognising skills as a key barrier, Our Skills for Tomorrow programme has helped 14.7 million people with digital skills with an aim to help 25 million by 2026.

• BT’s Consumer division is currently working with the charities Home-Start UK[81], and Buttle[82] to get very low income households the broadband they need, coupled with the ongoing skills and life support required to make a real impact.

BT & digital skills programmes

Skills for Tomorrow

BT Group’s Skills for Tomorrow program: We've already reached a total of 14.7 million people across the UK with digital skills support since 2014/15, including kids, parents, older and vulnerable people, job seekers, and small businesses – and it’s inspired us to push harder. We aim to help 25 million people improve their digital skills by 2026.

Older and digitally excluded programme: partnership with Abilitynet

In 2023, BT Group is focusing its digital skills support on older & digitally excluded citizens to ensure they have the necessary skills to make the most of life in the digital world. AbilityNet will deliver a nationwide programme to digitally upskill 4,000 older people through over 1,000 group and 1:1 training sessions. The partnership will also create the opportunity for 40 BT Group colleagues to be onboarded as volunteers.

Home-Start

BT’s Consumer division is working with Home-Start to offer 2,500 households with no connectivity, funded broadband access via our Home Essentials social tariff and free laptops. We also donated 500 tablets to Home-Start branches to help their volunteers reach and support more families.

Capability and partnerships to part or fully fund broadband: trials and building a scalable service

BT’s Consumer division has trialled an approach with charity Buttle UK and the Department of Education to offer fully funded broadband to households these partners identify as in need.[83]

Following the trial, we are now building a scalable capability to enable partners to part or fully fund broadband for households they are working with that need it. We expect to on board our first partner, likely a local authority in 2023.

7. What lessons can the UK learn from abroad?

• Estonia planned to embed digitalisation at the heart of all public services, and to enable this, had a comprehensive programme of skills and connectivity funding to draw the digitally excluded online.[84]

• Of comparable European countries, only France has better outcomes than the UK in terms of pricing of broadband and uptake (though they lag well behind the UK on superfast coverage). Yet France has put 20 billion euros[85] of public money into telecoms connectivity over the last decade, in contrast to the UK’s (planned) £5 billion[86] investment of public money in network build.

• For this section we reviewed measures employed across Europe to improve low income households access to broadband at home. Most of these have one or more measures in place to make broadband more affordable for low income households.

Policy measures employed across Europe to improve low income households access to broadband

Most European countries have one or more measures in place to make broadband more affordable for low income households. We can use this to assess which measures or combination of measures are most successful in increasing take-up. The Publications Office of the European Union identifies four key support measures in place facilitating access to digital services.[87] The Commission recognised ‘the importance of digital literacy and skills, not only as a response to the needs of the job market, but also as a precondition for participating effectively in today’s society’ and grouped provision of these under a measure they called ‘in kind benefits’.

Here we provide an analysis of the impact of two of the other support measures they identified: subsidising at-home connectivity via reduced tariffs or cash benefits. Within both, there is variation in both the type of services offered and the source of funding for these offerings. The chart on the next page provides an overview from the EU report, OECD data shows similar outcomes.[88]

Key points include: Finland, Netherlands, Sweden, Estonia and Germany all offer cash benefits to people on low incomes. This is typically delivered as part of their social assistance packages, where a reasonable cost allocation is calculated to cover their basic needs (such as housing, energy and water) and connectivity is considered as part of that package.

Sweden’s basic scale of social assistance includes an allocation for telephone and a limited cost for mobile. In addition to this, the guidelines state a radio, computer and television should be covered by social assistance.[89] Therefore in Sweden, household take up of high-speed internet is linked to availability of infrastructure rather than household income,[90] and only 1.8% of the population at risk of poverty are unable to afford broadband.[91]

In all of these countries, the population at risk of poverty and unable to afford broadband are on a par with the EU average or below, with Finland, Netherlands, and Sweden all ahead of the UK. Similarly, in Austria a public-funded grant worth €12 discount per month can be applied for by households which is then discounted off their broadband bill. Only 3.1% of the population at risk of poverty are unable to afford broadband in Austria.

Note: data source is unclear on definition of ‘internet access’ UK ranks as 96% in the EU report which is the figure for an internet access including mobile. We have replaced with most recent UK figure for broadband uptake.

USP = Universal service provider

Reduced tariffs are typically offered by the communication providers, with a range of amount of benefit they offer and their source of funding. There is much greater variation in what type of product is offered, the amount of discount as well as eligibility, leading to mixed results on the impact this approach delivers. Most countries offering reduced tariffs typically use a form of hybrid funding, either where there are alternative means of support available from the government, or external funding contributes to the cost for the providing company.

Overall, where there are support mechanisms in place, the countries that perform better than the UK generally use cash benefits, or provide social tariffs via a majority state-owned USP. The exception to this is Poland whose social tariffs are subsidised via charity partnerships and EU funding, and we also note we’re comparing UK data points from 2018 with current Poland data. In all examples, there is a source of external funding to support the initiative which is usually provided by the state.

In line with the UK data and research set out in our answers to other questions, affordability is not the main barrier to taking home internet: for households that don’t have a home internet connection, cost of the connection and/or equipment is cited as a reason for not having the connection in less than half of cases.[99]

Whereas not having the skills is cited as a reason in up to 80% of households without a connection and is almost always a higher response than the cost of connection. Therefore, to reduce digital exclusion skills training is essential to making digital services accessible to all.[100]

March 2023

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