Utility Switching In 2020
By Jane M. Darling | December 10th, 2020 – 5 minute read
Lockdown Broadband Switching Reaches Record High
Coronavirus has forever changed the way we consume information. The lockdown has made connectivity more important than ever and has elevated broadband to an essential service. Average online times have surged to about seven hours per day across home and mobile connections, as the country turned to the internet for work, school and entertainment. Not surprising then, in an effort to gain faster speeds and meet the needs of all members of their household, an estimated 30% of consumers in the UK switched either their broadband supplier or their broadband package as of March 2020.
“With an increasing variety of choice, consumers are searching for that sweet spot between good customer service, stable technology, and the best price.”
Even before the pandemic, people were moving away from landline calls and text messages in favour of online platforms like Zoom, WhatsApp and Facebook Messenger. Lockdown has accelerated the adoption of these services and others, with millions of people using online video services for the first time. It’s not surprising that in March internet usage almost doubled in the UK.
Faster and more reliable internet service is the primary motivation for switching plans or suppliers. At the outset of the lockdown, BT reported a near-70% surge in customers switching to full-fibre broadband, as many as 10,000 every week in June. Virgin Media has proven a popular choice for many as it is the only major provider with its own cable network, which means it’s able to offer ultrafast speeds across the UK with availability to about 75% of the population.
Energy bills are one of the largest single items of regular expenditure in the UK, and consumers are incentivised to switch suppliers and save on costs. Electricity and Gas switching rates reached a record high in 2019, according to Ofgem’s State of the Energy Market 2019 report, with the average household achieving a savings of £260.
Switching rates have been on an upward trend since 2014, with the majority of switches moving away from the “Big Six” firms to medium and small suppliers. In 2019, consumer engagement was at an all-time high leading 24% of energy customers to switch supplier. The UK now has more than 10 million people switching gas and electricity each year, and the rate of switching has doubled since 2014.
In October 2020, there were 621,000 changes of supplier, according to the Energy Market Data Hub (EMDH), which is a 20% increase from September. This follows a slight decline in switching during the early months of the pandemic, inactivity that can be attributed to consumer adversity to risk during times of instability. It is also the case that engineers, letting agents, property managers and estate agency representatives were furloughed and so fewer were working to facilitate switching on behalf of landlords.
Although we are seeing a slight decline in switching energy suppliers at the end of 2020, as the economy stabilises and consumer activity and confidence increase, the expectation is that switching numbers will rise to meet or exceed the 2019 peak.
Why Consumers Switch
Saving money is the main reason for switching, with price comparison websites facilitating these changes; half of those who switched used a price comparison site to find the best rates among the 60 energy suppliers in the market. Other reasons behind switching electricity and gas suppliers include a desire to make a positive environmental impact and poor customer service, although these motivations are less of a factor.
Barriers to switching include the slower-than-expected roll-out of smart meters, promising consumers better usage data, the perceived hassle with customer service and a limited understanding of the cost benefits of switching. The changing landscape of energy providers has also contributed to switching. Ofgem reported twelve exits from the market between June 2018 and June 2019, representing more than a million customers, who were absorbed for the most part by medium-sized suppliers.
Demographics also play a role; vulnerable populations tend to pay default tariffs, which are typically more expensive than the fixed-term tariffs requiring periodic renewals. Almost half of the consumers in the lowest income decile have a gas prepayment meter and pay default tariffs. Younger people and those with higher incomes are more likely to be engaged with the energy market, and those aged 16-34 are the most likely to switch energy suppliers. Among those who had not engaged, 30% of consumers cited satisfaction with their current supplier, 19% believed it would be a hassle to switch, and 10% believed there was no financial benefit to switching.
Intermediaries, who can provide better technology and superior customer service are simplifying interactions and facilitating switching to the best deals precisely at the moment customers are likely to change. Property Management Software integrations make life easier for landlords, letting agents and consumers by processing utilities account switching and taking care of administration tasks, making engagement with the energy and broadband market simpler, and delivering significant time savings for all parties.
The impact of smart meters will continue to positively impact the rate of switching. Smart meters record and transmit real-time power consumption data to both consumers and suppliers allowing for more sophisticated energy delivery services. The roll-out of smart meters enables a faster and more reliable switching process, opens up opportunities for time-of-use tariffs and the corresponding demand-side response, and improves consumer protection. As 2020 comes to a close, close to 16 million UK homes have been fitted for smart meters, with 250,000 installing in October, however, this is far below the government’s target of replacing 50 million meters by the end of this year.
The COVID era has proven to be one of the massive disruptions in our daily lives, but this disruption might also be seen as an opportunity for consumers as suppliers accelerate technological innovation in response to the pandemic, they benefit from more competitive market-responsive tariffs. Be it switching suppliers to get faster and more reliable broadband or a competitive energy tariff, more consumers feel empowered to make use of the data available to make changes that best suit their needs.
The Sweet Spot
With an increasing variety of choice, consumers are searching for that sweet spot between good customer service, stable technology, and the best price. Despite the upward trend in switching, the proportion of unengaged consumers remains high with 27% of consumers reporting that they have never switched suppliers. In 2019, Ofgem introduced a price cap on expensive default energy tariffs, protecting around 11 million energy customers. Recently this price cap was extended through 2021, and it is possible these customers are less inclined to switch as they see costs declining.
Whether its energy or broadband, the volume of switching activity is paying off for consumers. Looking ahead, we may see a peak in switching activity within the year that smart meter installations in the UK are near completion. Switching may settle into a close relationship with activity in the lettings and estate industry where change is facilitated for consumers and they may find they can take advantage of the many options to achieve that sweet spot with their essential utility supply. The trick is to remain there as long as usage needs to stay the same and market demand is stable. Enjoy it while it lasts!