On 16 December 2015, the CMA published an addendum to its provisional findings report of 7 July 2015.
The CMA has provisionally found a further Adverse Effect on Competition (AEC) arising from features of the prepayment segment (PPS) of the market that reduce suppliers’ incentives (and, for some, their ability) to compete to acquire prepayment customers. As a result, the CMA has found that the tariffs available in the PPS are not competitively priced. It notes that entry by independent suppliers in this market has been substantially more limited than entry in the direct debit market, with the notable exception of Utilita (which focuses on a smart prepayment offering). In addition, there is a low rate of prepayment customers switching to an alternative means of payment, which suggests that “acquisition tariffs” in the direct debit part of the market are not a significant constraint on the pricing of tariffs in the PPS.
The features of the market that the CMA has provisionally found give rise to the AEC are:
- technical constraints (i.e. resulting from old prepayment infrastructure) that limit the ability of all suppliers, and in particular new entrants, to innovate by offering tariff structures that meet demand from prepayment customers who do not have a smart meter; and
- softened incentives for all suppliers, and in particular new entrants, to compete to acquire prepayment customers due to (i) actual and perceived higher costs to engage with, and acquire, prepayment customers compared with other customers and (ii) a low prospect of successfully completing the switch of indebted customers, who represent about 15% of prepayment customers.
The CMA has also published a second supplemental notice of possible remedies. Remedies being considered are:
- facilitating sharing of data relating to prepayment meter customers;
- prohibiting charging a security deposit where the customer is not in debt and has not incurred any fines, charges of interest for late payment in the last six months;
- prohibiting upfront charging for the cost of a new meter when a customer switches away from a prepayment meter;
- reforming the protocol for assignment of debt on prepayment meters; and
- imposing a transitional “safeguard price cap” for domestic prepayment customers.
Interested parties have until 6 January 2016 to comment on this further provisional finding and the associated potential remedies.
The CMA’s provisional decision on remedies is expected later in January 2016 and the CMA’s final report is expected in April 2016, in advance of the revised statutory deadline of 25 June 2016.
To review the addendum to provisional findings and the second supplemental notice of possible remedies, please click here.