Yellow Pages is the biggest player in the UK directory industry, taking a huge chunk of the sector’s classified advertising revenue. Its position is so dominant, in fact, that the directory classified advertising market is being investigated by the Monopolies & Mergers Commission, at the request of the Office of Fair Trading.
When asked by Marketing Week to comment on the directories industry and the MMC investigation, Yellow Pages’ managing director, John Condron, issued a statement: “We have given the MMC full support and co-operation in its investigation. We believe we operate fairly and competitively across the entire range of Yellow Pages directory products and are confident that we can lay to rest any concerns about our position and practices.
“Our present position reflects our contribution to the wider classified advertising market and is a result of our commitment to delivering the best possible product to advertisers and users. We are, of course, continuing to maintain that high quality of service throughout the period of the inquiry.”
Yellow Pages would make no further comment.
At the time of the referral in March, Sir Bryan Carsberg, then director general of fair trading, said: “Yellow Pages has, for some years, enjoyed very high rates of return on capital and this suggests that its strong position in the market, combined with significant entry barriers, offers scope for taking advantage of advertisers and for acting anti-competitively against existing and potential rivals.
“It will be for the MMC to investigate and decide whether Yellow Pages has in any way operated against the public interest.”
Yellow Pages takes some 85 per cent of the market in classified directory advertising targeting households. Its main competitor is Thomson Local Directories.
Ironically, it was Thomson that developed the Yellow Pages concept in 1966, when it was sales agent for the GPO, in the form of the Thomson Yellow Pages. It was Thomson that advised the GPO to copyright the name “Yellow Pages” – in Europe and the US, the term is not the property of one company, but is generic term. When the GPO was split into the Royal Mail and BT, the copyright passed to BT.
In 1980, with the beginning of the break-up of its monopoly, the GPO decided that it wanted to divide the country into three “franchises”, with a different sales agent for each one, to increase its revenue.
Thomson was offered one of these, but rejected it, preferring to set up its own Thomson Local Directories.
The company’s decision was based on research which suggested that 80 per cent of consumers shop within a ten-mile radius of their homes, and that the Yellow Pages geographic areas, with each book at that time mirroring that of the relevant telephone directory, failed to take this factor into account.
Critics of Yellow Pages point to the relatively low advertising spend on directories in the UK as evidence that its dominance has restricted the growth of the media. One industry insider comments: “In the US, the directory advertising spend per head of population is 20. In the UK, it’s 5. In the Chicago area alone, more is spent in a year on Yellow Pages advertising than in the UK in a whole year.”
Thomson ploughed investment into its directories, and it was 1985 before it broke even. In May 1994, Thomson was acquired by US West – one of the seven “Baby Bell” US regional phone companies – from joint owners The Thomson Corporation and information services giant Dun & Bradstreet. Thomson has so far failed to loosen Yellow Pages’ grip on the market, despite research conducted by National Readership Surveys which suggests that over a 12-month period, 33 million people consulted the Yellow Pages times and 22 million a Thomson directory. But while Thomson may have 40 per cent of the use, it only gets around ten per cent of the advertising.
There are now 100 Thomson directories, 71 Yellow Pages directories and about 80 “white pages” phone books, as well as three Business Pages.
Terry Procter, who used to be sales director of the Yellow Pages, has made presentations to the MMC. He says: “I have told the MMC that I am forced to deal with one supplier for 85 per cent of the space I book for clients: I have to deal with Yellow Pages Sales for the Yellow Pages, Business Pages, the white pages, and for [telephone service] Talking Pages.”
Another major objection he has is that BT claims the copyright of the phone numbers it supplies. Thomson, for example, has to buy the numbers before it can use them in its directories. Procter says: “That information originally came out of a public utility. That public domain information provides the basis for Yellow Pages’ dominance of the directory industry.”
It should be noted, however, that BT operates under restrictions which mean that it cannot “cross-subsidise” its various services. It could perhaps argue that regulations require it to charge a commercially justifiable rate for providing telephone number information, otherwise it could be criticised for using information to increase the revenue it gets from telephone calls.
Procter has no idea what the MMC will decide: but what he hopes to see is the removal of BT’s copyright on Yellow Pages, changes to its “ownership” of telephone numbers and some sort of “franchise” system, splitting up the country so that a number of companies can publish Yellow Pages directories.
Gary List, managing director of Thomson Local Directories, says: “The market is still underdeveloped in the UK compared with countries such as Portugal, Sweden or Belgium, where a more business advertisers use directories. It would be good for the UK if the industry could be further developed.’
Thomson argues that the “Yellow Pages” is now used by consumers as a generic term, and that BT should relinquish its copyright. List says: “If the term became available for more companies to use, then the market would expand enormously. We’re hoping to see a market open to all competitors.”