Regulation - Case 12

Empirical analysis of automatically renewable contracts and switching in the UK’s telecoms markets

Together with Professor Gregory S. Crawford of the University of Warwick, we prepared for Ofcom a report empirically analysing the effect of BT's automatically renewable contracts (ARCs) on its customers' decision to switch fixed-voice communications provider. On the basis of an information request under Section 135 of the Communications Act 2003, we were able to reconstruct the histories of a large sample of BT customers as they moved from one plan to another before possibly leaving BT. We used these data to estimate an econometric model that accounts for a variety of factors influencing switching, including tenure, bundling, price discounts, early termination charges, and self-selection into ARCs. In In the light of our results, which show that ARCs significantly reduce switching, Ofcom decided to prohibit such contracts in the fixed-voice and broadband sectors.