Business ofcom Regs

Non-Geographic Villainy

Unless you’ve been in Outer Mongolia, on the Moon, or unconscious for the last few years, the trials and tribulations of the non-geographic numbering regime won’t have escaped you.

We’ve had the Department for Business, Innovation and Skills (“BIS”) implementing the European Consumer Rights Directive which mandated the use of basic rate (don’t ask what that really means) numbers for post-contract queries. This came with a list of exemptions so long and complicated it’ll be beyond many on the coalface advising service providers on their telecommunications. The initial drafting also made it unlawful to use a freephone number for around 9 months between June 2014 and March 2015. Thankfully, BIS has recognised this as an issue and has apparently changed the drafting to say that you can use a higher revenue sharing number than just free to caller, geographic or 03 (the original proposal) but you have to offer a refund if you used a higher one. I am yet unclear whether that is a refund on just Ofcom’s proposed Service Charge or the combination of the Access Charge and Service Charge in the new regime coming into force in 18 months (more on that in a second).

We’ve also had PhonepayPlus intervening in requiring signposting services (something I personally find morally questionable) requiring a prior permission certificate (that decision is now subject to a judicial review) as well as BT (with some help) going to the Supreme Court in February this year to overturn a Court of Appeal decision relating to the Competition Appeal Tribunal’s overturning of an Ofcom Determination on their interconnect charges for non-geographic numbers.

Confused yet? That new Ofcom regime requires freephone to be free to caller (a subtle but important distinction as presently, only BT is legally required to have freephone as free) but will also “unbundle” the tariff. You know how when you vote by text for a TV show? It says “Texts cost £1 plus your operator’s standard rate”, the standard rate being the cost in your plan for sending a text. Soon, calling your bank will follow a similar trend. The advert will say “Calls will cost 3 pence per minute, plus your operator’s access charge”. The idea is that this disaggregates what the bank is charging you for the call (3 pence per minute, though the terminating operator will take an amount for providing the service) and what your phone company is charging you on top for making the call. Oh, and 0845 gets lumped in with 0844 and 0870 goes full circle and gets lumped in with 0871.

On top of all that, making 080 free to caller properly is likely also to increase a service providers’ cost, both in pence per minute for receiving the call but also in the volume exposed to a higher origination charge from a mobile operator. Empirical data from the Department for Work and Pensions suggested that the mobile originated volume can increase five-fold when 080 becomes free to caller. One economically likely outcome will be a migration from 080 numbers to 03 numbers, which could actually cause consumer price inflation. We wait to see. Oh, and 050 is being proposed to be closed, with 070, 076, 055 and 056 having a similar question hanging over them. That’s before I get into the reduction of some 300 price points for non-geographic numbers being reduced to around 100, and the premium rate cap going up from £1.51 to £3 per minute (and £5 per call drop charge).

If I were a military man, I suspect I might use a word starting with “cluster” to describe the potentially simultaneous and accumulative impact of all of this.

The reason that Ofcom have involved themselves in all this is because of alleged consumer harm from a lack of transparency in the market place for these numbers. Lots of consumer research data suggests confusion over what 08 and 09 numbers are and what they cost; even to the extent that some people were paying more to get on a bus to use the Citizen Advice Bureau’s phones for free than it would’ve cost them to just call the number at home.

In my own personal opinion, that’s Ofcom code for addressing an abuse perpetuated by a small number of large operators. BT, which represents circa 40% of the market for fixed line telephony was bound by Significant Market Power Condition AAA11 which meant they had to charge certain amounts….. 4 pence per minute meant 4 pence per minute (plus a call set up fee). Some mobile phone operators charged 40 pence per minute for a call that was free from a BT (and almost all fixed operators’) lines. To add insult to injury, the service provider was paying that mobile operator around a penny a minute for the privilege of making the call “free”.

So recently, when I saw a friend berating EDF Energy for charging her £4.20 for calling and correcting their mistake, I drilled into things. Firstly, EDF does make available a geographic number for calling from mobiles….. and the rest of their numbers are freephone. Had she called from a landline (which all broadband customers except for those on Virgin Media fibre have by definition), it would’ve been free, or the 01/02 number would’ve been included in any monthly allowance otherwise.

The immediate response was that “most people don’t have landlines, so it’s still EDF’s fault”. The most heavy concentration of mobile-0nly households are in socioeconomic groups D and E which are around 26% mobile only, with other groups peaking at 14% so that doesn’t entirely stack up. Mobile operators, which retain (according to the 2009 flow of funds study by Ofcom (see Figure 5.4)) an average of 13.3 pence per minute of a call to a non geographic number, compared to 1.7 pence per minute of a fixed line operator; which doesn’t include the circa penny they are paid to make it free in the first place if freephone, might be a better place to look to apportion blame. That £4.20 (or rather, 30 minutes at 14 pence per minute plus the 30 minutes at around a penny EDF paid makes it £4.50) went straight to the bottom line of the mobile operator (give or take the origination costs which are minimal on an incremental basis, a cigarette packet calculation would suggest it contras the EDF payment, so we’re back at £4.20 again).

At a macro level, the market for non-geographic calls (which are designed as a micropayment mechanism to recover some of the costs of providing the service in question) is worth c£1.7bn a year, of which 25% is retained by mobile operators for around 11% of the volume. One really has to ask in this situation, who is the villain here. EDF, a service provider, which made a number of efforts to have its customers avoid paying to call them, or the mobile operator that pocketed the sum of money – potentially from what could be argued as a monopoly position in certain households?

I have often heard the phrase “rip off” numbers; with the implication that the called party is creaming it on the revenue they enjoy. Well, running a contact centre costs around 50 pence per minute of answered calls (according to an internal study by one major service provider which I was privy to); a contribution of sub-10 pence a minute from even the most expensive 0871 number doesn’t make a substantial dent. At the low end, say 0870 or 0845, they may receive next to nothing (or even have a net charge). The frustration from the “rip-off” hyperbole is probably somewhat directed at the wrong place.

I should note, for balance, that there is a school of thought that argues a reduction in charges by certain operators for calls to non-geographic numbers would lead to an increase in rental costs for everyone….. those arguments are theoretical, and have been equally and reputably countered, but clearly does raise interest socioeconomic and welfare issues relating to cross subsidy.

Anyway, not that I should ever advocate the direction of angst at our industry, but when berating a company you call for its choice of numbers and alleged revenue from it, for the next 18 months at least, think long and hard about who is really at fault first – the service provider or the originating communications provider. At the very least, this will help achieve Ofcom’s objective of increased consumer awareness and competitive pressure.


Peter Farmer

By Peter Farmer

Peter Farmer is the Commercial and Regulatory Manager at Gamma, writing here on Trefor.Net in a personal capacity. He sits with Tref on the Internet Telephony Service Providers' Association Council and is their Chair of the Regulatory Affairs Committee.

Peter's experience covers consultation responses and disputes with Ofcom, lobbying government (UK and European) on telecommunications matters, litigations at the Competition Appeal Tribunal, Court of Appeal and Supreme Court. Despite all of that, and having three Masters degrees, his main job is actually being a Personal Assistant to his two cats.

4 replies on “Non-Geographic Villainy”

There’s two problems really.

1. is there really any role for 084x at all?

Why not just have 01 and 02, o3 and 080 plus some nasty 09s? No-one knows what the 08 range is anyway: from something wot I writ a few years ago, paraphrased from an Ofcom report

Consumers know what 01 & 02, local or geographic numbers, are and believe them to be the cheapest number to call
64% of consumers know that 0800 are free to call
Consumers think there is little difference in cost of calling 0844, 0845, 0870, 0871
Consumers always overestimate how much all types of calls cost.
Consumers are less likely to call numbers that they perceive to be more expensive to call and/or are unfamiliar to them.
Crucially, 65%-78% of consumers either won’t call, or are unlikely to call, telephone numbers used in adverts if they use these types of numbers: 0845 (65%), mobile (70%), 0870 (73%), 0844 (76%), 0871 (78%).

The second problem is, indeed the mobile companies and I think we can solve that by nationalisation.

Be clear that when you call an 084, 087 or 09 number from a BT phone line, it’s all effectively Service Charge you are paying. Almost the whole lot gets passed on to the terminating provider. BT retains almost nothing of what you paid. The “NTS Retail Condition” governing this will end when the new “unbundled tariffs” system is introduced (technically it ended in October 2013, but Ofcom extended it until June 2015). Currently, BT’s call rates are not typical in the marketplace; they vary from all other providers. This will become very clear under the “unbundled tariff” system when it comes in. BT seems likely to set their Access Charge quite low on the new system.

Ofcom have also slightly altered the Access Charge rules and allowed BT (and others) to continue offering 0845 numbers as inclusive calls. Only BT and a few others can afford to do this. The common factor is that they are each significant suppliers of 0845 numbers to businesses. For example, BT run the majority of all 0845 numbers that are currently in use. When calls are made to 0845 numbers by BT customers, the Service Charge is mostly retained within the BT Group of companies. BT pay out Service Charge (POLO) on 0845 calls only when a BT caller rings an 0845 number run by another telecoms company. On the other hand, BT receives Service Charge whenever callers using Sky, Virgin, other landlines, or any mobile phone make a call to any of the hundreds of thousands of 0845 numbers that are run by BT. For 0845 numbers call termination, not origination, is where BT makes their money.

Notice that BT does not subsidise calls to other 084 numbers with similar levels of Service Charge as they do not administer anything like the same amount of phone numbers in the 0843 and 0844 ranges as they do in the 0845 range. Of all the various non-geographic numbers with a Service Charge, only those beginning 0845 are inclusive calls. It is useful to note that 0870 numbers are inclusive only because there is no Service Charge (until 26 June 2015 that is).

BT has a vested interest to ensure that the public perception of 0845 numbers is that they are cheap to call. Given that BT has less than 40% of the residential landline calls market and landlines account for less than 45% of all calls, for the vast majority of callers 0845 numbers are certainly not cheap to call. These calls cost up to 10p/min (plus 15p connection fee) from landlines and up to 41p/min from mobiles. A number of sellers of 0845 numbers to businesses are still claiming these calls are “local rate”. Number sellers rarely, if ever, point out what the majority of callers are really paying to call these numbers or mention these calls are generally non-inclusive in call plans.

It is now slowly dawning on people that 0845 calls are not inherantly cheap, they are cheap from BT lines only because BT is giving their own customers a discount. Ofcom’s “unbundled tariffs” system will better expose the realities, especially the Service Charge component that many users of these numbers currently deny even exists. Many claim they receive no financial benefit, even though the caller is effectively paying their running costs for them!

At least one government department has recently sought to justify their continuing usage of 0845 numbers with the following crazy logic. They stated they would have to pay fees to use an 03 number and (incorrectly) stated that 0845 numbers are “cost neutral” because they neither make money from them nor pay for their usage. 0845 numbers certainly are NOT cost neutral; the running costs are shifted on to the caller’s bill. It is 03 numbers that are cost neutral. The caller pays standard geographic rate (or the call is inclusive) and the user pays for the non-geographic call features.

Considerable consumer harm has arisen from the indiscriminate usage of 084 numbers by businesses. For 0843 and 0844 numbers, many users declare something similar to “Calls cost 5p/min from a BT line, other providers may charge more”. However, in many cases the caller is paying up to 12p/min (plus a 15p connection fee) from a landline and up to 41p/min from a mobile phone. This price difference is a significant contribution to bill shock. It has to come to an end.

While there is no denying the fact that mobile operators often add an excessive markup to the call price, the only reason they can do this is because the business is using a number that makes this possible. By changing from an 084 number to an 03 number, the business loses their couple of pence per minute revenue share payment and incurs a running cost around 1p/min. At the same time the caller’s bill reduces by up to 41p/min and the call is very likely to be “inclusive”.

The reduction of the number of price points is a good thing. There are far too many with very similar levels. If Ofcom are going to be simplifying things, this was one obvious target. Ofcom have previously made minor changes here and there and this has caused more problems than it fixed. The most obvious was removal of Service Charge and revenue share from 0870 numbers in 2009 which simply led to many users moving to 0844 numbers. Businesses continued receiving revenue share and callers were paying the same if not more for the calls.

On seeing this failure, Ofcom stopped short of making similar changes to 0845 numbers and instead went for a major review. It’s a shame it has taken three years to get this far. Original plans would have seen implementation of the “unbundled tariffs” system in June 2014. Ofcom were severely delayed by multiple objections from the mobile industry. Implementation is now set for June 2015. That’s almost 18 months away and there is much to do during the remaining time.

Under the new BIS “CCR” legislation, the only prefixes allowed for customer service helplines after 13 June 2014 are those beginning:
– 01, 02 and 03 (geographic rate),
– standard 07 mobile numbers (mobile rate), and
– 080 (freephone) numbers (notwithstanding the fact these calls are not yet free from all mobile phones).

For many, perhaps most people, their calls to 01, 02 and 03 numbers are “inclusive” on landline and mobile call plans.

Likewise many mobile users also have “inclusive” calls to other mobiles. With the Mobile Termination Rate already under 1p/min and due to be further reduced in March 2014 and March 2015, call plans on landlines may soon have inclusive calls to mobile phones.

Calls to 080 numbers are free from landlines and will also be free from all mobile phones by 26 June 2015.

Where an 080 number is already in use by a business, it makes sense to add an 03 number in parallel. This will be an “inclusive” call from many mobile phones (effectively “free” for the caller) and charged at no more than “geographic rate” for the rest. The 03 number will have significantly lower running costs than an 080 number. A number of organisations already have such dual numbers in place. Where this is the case, they often promote the 080 number for landline users and the 03 number for mobile users. They should be promoting the 03 number for mobile users AND for all users with inclusive minutes on their landline.

Prefixes definitely not allowed under the BIS legislation are those beginning 084, 087, 090, 091 and 098. These are all numbers where the caller pays a Service Charge to the benefit of the called party.

Where the Service Charge is around 2p min (i.e. 0845 numbers and the lower levels of the various 0843 and 0844 numbers) it may just about cover the call handling and final-leg call routing costs for the non-geographic number. Where the Service Charge is lower (the very lowest level 0843 and 0844 numbers), there may be a small charge to the user for using the number. Where the Service Charge is higher (all other 084, 087 and 09 numbers), the called party may benefit from a revenue share payment.

BIS had to fend off claims that 084 numbers are ‘basic rate’ calls. One argument put forward was on the basis that BT charges less for calls to 084 numbers than for calls to 01, 02 and 03 numbers. BIS realised that the BT 084 call price is capped by regulation (and that the regulation ends in 2015) and the 01 and 02 call price is unregulated. BIS also realised that these are call prices for callers on a “Weekend” call plan making calls during weekdays – a highly non-typical situation. The situation many callers find themselves in is that 01, 02 and 03 calls are inclusive and 084, 087 and 09 calls are non-inclusive. They are non-inclusive because there’s a Service Charge to pay.

Numbers beginning 070 and 076 and various non-standard mobile numbers aren’t allowed under the new BIS legislation. It’s likely that 055 and 056 are also ruled out unless every landline and mobile network charges them exactly the same as calling an 03 number.

The BIS regulations and guidance notes require careful reading. There is a lot of detail. Knowledge of Ofcom’s forthcoming NGCS reforms are also necessary to gain full understanding.

One useful addition to the final version of the legislation is that where a trader fails to comply, the caller can claim back the cost of the call over and above whatever that call would have cost had it been to an 01, 02 or 03 number. Where the caller has those calls as “inclusive” the caller can therefore claim back the full cost of the call. If that’s not an incentive for businesses to stop using numbers that pay out a couple of pence per minute revenue share but would have to be refunded at rates of up to 41p/min, then I don’t know what is!

Thanks all. These are great comments and special thanks to Ian for the time and effort spent on the comment.

I very rarely touch 08 numbers myself, except for 0800’s. I am never sure how much they are costing me.

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