Insight article

Affordability of telecommunications services

An analysis of Ofcom data on the affordability of broadband, mobile and landline packages
3 min read

Key findings

  • The number of households that had any affordability issues for broadband, mobile packages, and landlines increased by 20% between February 2022 and April 2022.
  • One in eight households said they had reduced their spending on other items such as food or clothes to be able to pay for their connectivity service in April 2022. This is a 5 percentage point increase from February. 
  • The proportion of middle-income households (between £26,000 and £51,999 per year) that reduced spending elsewhere to afford connectivity services almost doubled from February to April 2022.

Introduction

Consumers in the UK are currently experiencing a cost of living crisis, with the price of essentials such as food, fuel, and energy soaring. The Bank of England expects inflation rates to rise to around 10% this year as a result of increases in the energy price cap and further supply chain disruption. 

Connectivity services (i.e. broadband, mobile packages, and landlines) have not been spared by the effects of rising inflation with communication providers hiking their prices. As these services are increasingly essential in today’s digital age – 89% of all adults in Great Britain in 2020 use the internet daily for key activities such as emails, finding information about goods and services, and banking – customers will be struggling to afford another basic necessity, potentially leading to cancellation of these services.

Methodology

Our analysis is based on data from Ofcom’s Affordability Tracker which has surveyed approximately 1,000 consumers every two months since June 2021. The most recent data is for April 2022. The data offers insight into affordability issues faced by consumers, as well as demographic and socioeconomic information. Only essential connectivity services such as mobile phone service, fixed landline telephone, and fixed broadband are included in this analysis.

Affordability issues affecting consumers

Households have been affected by telecommunication affordability issues in a range of ways. The number of households that have had any affordability issues in the past month increased by 20% from February 2022 to April 2022.

The number of households that experienced multiple affordability issues (have had the same type of affordability issue with more than one service, or more than one type of affordability issue with either the same or different services) rose even more sharply, with an increase of 56% within a similar timeframe. 

The importance of connectivity services is demonstrated by the increase in the number of households who said they had reduced their spending on other goods such as food or clothes to be able to pay for their connectivity service between February and April 2022. This increased by 5 percentage points, so that about one in eight households had to decrease spending on other goods in April. 

There was also a 1 percentage point increase in households who cancelled service and a 2 percentage point increase in households who made changes such as switching packages or tariff.

Lower income groups more likely to make cutbacks

The effects of rising connectivity costs have disproportionately affected households with lower incomes and those who are financially vulnerable. 

For lower income households (with an annual income of up to £25,999 per year), the proportion of households that reduced spending elsewhere to afford connectivity services was 22% in April 2022. However, the rate of increase was greatest for households on middle incomes, as it almost doubled for those with annual incomes of between £26,000 to £51,999.

For households defined by Ofcom as most financially vulnerable, the proportion increased by 19 percentage points from 12% to 31%. 

These increases are a cause for concern as this means that households on and below median incomes (£31,400) are increasingly struggling to find leeway within their budgets for all their essential needs. Additionally, those who are financially vulnerable will likely have tighter budgets, making it more difficult to absorb price increases.

Conclusion

Ofcom’s Affordability Tracker Survey shows that households are increasingly having to make difficult decisions about which essentials to prioritise, and the most recent data shows that approximately one in eight households cut back on other goods such as food and clothing to pay for their connectivity services. 

The government recently announced a package of financial support for households, but with inflation yet to peak many households are going to have to continue to make difficult choices. That so many choose to prioritise their telecoms services demonstrates how essential these services are. However, this isn’t reflected in how these services are taxed. Which? believes that broadband, mobile and landline services should be VAT rated at 5% in line with other essentials such as gas and electricity.