Customer switching in mobile and broadband

Key findings

• The rate at which people switch their provider is almost twice as high in the mobile than the broadband market. The switching rate for mobile is 16% compared to 9% for broadband.
• The introduction of Text to Switch - a policy which allows mobile network customers to easily switch - may have increased the switching rate in mobile, but the differences between the services predates its introduction in 2019.
• Bundling of multiple services together with broadband increases the switching costs for consumers and keeps switching low. Consumers who buy a bundle including Pay TV alongside their landline and broadband are 2.4% less likely to switch than someone with just broadband or/and landline. When they add mobile to the bundle, they are even less likely to switch (3.8%).
• Dissatisfied customers are more likely to switch mobile networks. Those who were very and fairly dissatisfied were 6.4% and 7.4% more likely to have switched compared to those who were very satisfied. By contrast, satisfaction does not affect the likelihood of switching broadband providers.

Introduction

The rate at which consumers switch between providers is a useful indicator of the intensity of competition in a market as switchers put pressure on providers to reduce prices and improve product quality. However, switching takes effort, consumers incur switching costs, and this can deter them from actively engaging in a market. 

Ofcom’s Switching Tracker indicates better competitive demand in the mobile market  consumers are almost twice as likely to switch their mobile provider than their broadband provider. Switching has become more common in mobile in recent years with the rate increasing from 10% in 2018 to 16% in 2021, compared to 9% for broadband in 2021.

In this article we present analysis of Ofcom data on consumer switching to explore what factors may influence the difference in likelihood of consumers switching between broadband and mobile network markets. In particular, we explore whether propensity to switch is related to the bundling of services and how this might differ between the two aforementioned markets. 

Factors affecting the likelihood of switching

There are a range of factors that will affect an individual’s propensity to switch the provider of their broadband or mobile services. 

The complexity of the switching process is likely to matter and certain policies that have been recently implemented might have influenced a higher level of switching for mobile phones by making it easier for consumers to switch. Text to Switch was introduced in 2019, allowing mobile customers to switch networks by sending a quick free text message to their existing provider and obtaining a porting authorisation code (PAC) which allows a customer to switch and retain their phone number. 

Over a half of consumers (51%) who requested a PAC in 2021 to switch networks did so by text, up from 43% in 2020. It is plausible that the sharp increase in mobile switching rates between 2019 and 2020 is partly attributable to the introduction of Text to Switch.

There is no direct Text to Switch equivalent for broadband services, although Ofcom intends to introduce a provider-led switching process called ‘One Touch Switch’ from April 2023. This will likely make it easier for consumers to switch broadband providers as they will only need to contact their future provider.  

However, while the introduction of Text to Switch might have increased the difference in switching rates between the broadband and mobile markets, the fact that switching was already more common in mobile suggests that other factors are important.

One such factor may be the bundling of multiple services as this has been shown to increase ‘switching costs’ for consumers as they have to perform research for multiple services and look for new providers to provide similar services. Adding services to a contract over time can mean it becomes more difficult to switch the longer a customer stays with one provider, and they may become locked-in to their current provider. This factor is a key difference between broadband and mobile markets as bundling is less common for mobile services.

More than half (53%) of broadband customers bundled their broadband with other services in 2021, most commonly with landline and/or Pay TV, and they widely acknowledge that this may affect their likelihood of switching through an increase in switching costs. In 2021, 34% more consumers agreed than disagreed that taking multiple services from one provider makes it more complicated to look for a cheaper deal elsewhere.

The proportion of customers who have had broadband bundled with another service has decreased over recent years, largely driven by a 12 percentage point drop in consumers bundling Pay TV with their landline and broadband (Triple Play bundling) from 2019 to 2020. The decrease in bundling, especially in Triple Play, could explain the increase in broadband switching rates from 2018 to 2020.  

Meanwhile, only 9% of consumers in 2021 bundled other telecoms services with their mobile. It is more common for providers to bundle SIM cards together with handsets, although there has been a move towards SIM-only contracts in recent years, with 44% of consumers on a SIM only deal in 2021 compared to 29% in 2018. 

This indicates that bundling of broadband providers is likely to have kept switching rates low, thus decreasing competitive pressure in the market and potentially leading to overall higher prices for consumers. 

Findings

The main finding from our regression analysis is that consumers who bundle their broadband with other services have a lower probability of having switched providers in the last 12 months. Further, the likelihood of switching decreases as more services are added on to a basic bundle (either broadband or broadband and landline). 

Having a Triple Play bundle decreases the probability of having switched in the last 12 months by 2.4% [p = 0.006] compared to just the basic bundle. With Quad Play bundling (bundling mobile phone and Pay TV with landline and broadband), there is a 3.8% [p = 0.01] lower probability compared to the basic bundle. This strongly supports the idea that bundling of multiple products plays a key role in keeping consumers from switching providers.

However, for mobile network customers, our analysis found that with other factors considered, there is no statistically significant difference in likelihood of switching between those with pre-payment mobiles, SIM-only contracts or those with handsets in their deal. Thus, the difference in how mobile deals are structured does not appear to affect switching behaviour in mobile markets. 

In addition to the bundling results, the analysis also found statistically significant differences in having switched between levels of satisfaction with mobile providers. Consumers who were very and fairly dissatisfied were 6.4% [p = 0.06] and 7.4% [p < 0.001] more likely to have switched compared to those who were very satisfied, respectively. 

However, satisfaction made no difference to the likelihood of switching broadband providers. This is surprising and may be indicative of there being greater barriers to switching in the broadband market.

Customers of challenger firms in both markets are more likely to have switched in the last 12 months. In mobile, those who are currently with suppliers other than the big four mobile networks (EE,O2,Three,Vodafone) have a 5.9% [p < 0.001] higher probability of having switched compared to customers of EE. In broadband, customers with suppliers other than the big four broadband providers (BT, Sky, TalkTalk, Virgin Media) have a 5.1% [p < 0.001] higher probability of having switched in the last 12 months compared to those with BT.

Conclusion

Overall switching rates among consumers for all telecommunication services have been low with less than one in five consumers having switched any services in the last 12 months. However, there are some initial positive signs of better competitive demand in the mobile market as there was a significant increase in switching (from 10% in 2018 to 16% in 2021). 

Policies which simplify the switching process for mobile consumers such as text-to-switch seem likely to have increased the rate of switching but cannot fully explain why switching is more common in mobile than broadband markets. 

Other factors must play a role and the most likely seems to be that broadband providers are better able to keep their customers because they offer bundles of products and this increases switching costs for consumers who must compare the offer for all of these.

It therefore seems likely that bundling might reduce competitive pressure in the broadband market, which is concerning because decreased competition in the market could lead to higher prices and the affordability of telecoms is a problem for many households.