Public AccountsWritten evidence from Ofcom

Summary and Key Messages

Ofcom has concerns that the way that non-geographic calls are being priced by some operators is leading to considerable uncertainty and confusion and, in some cases, real consumer detriment.

Alterations to the European regulatory framework for telecoms have enabled us to propose significant changes to the non-geographic calls market so that is more transparent and predictable for consumers. We are proposing that:

080 numbers will be free-to-caller from mobiles as well as fixed lines; and

a consistent and clear tariff structure (which separates out the costs of calls into an “access charge” and a “service charge”) will apply to the other non-geographic numbers -084, 087, 09 and 118.

These changes are complex and far reaching and, consequently, we have consulted extensively to ensure that they are soundly based and understood by participants at all parts of the value chain.

Our policy position was published in April and, following the expected publication of our final statement this autumn, will be implemented over an approximately 18 month period.

It is not Ofcom’s role to advise public or private sector users of non-geographic numbers which ranges and price points they should adopt.

Nevertheless, we are undertaking an extensive communications programme with both private and public service providers so that they understand the impact of the changes and what their options are.

For the public sector, we wrote to permanent secretaries of Government departments in April advising them of the changes and seeking contacts for more detailed briefings which have now been completed with most departments.

We are now extending this contact programme to the devolved administrations and local government.

What is Ofcom’s role in numbering?

Ofcom has a number of duties in relation to numbering. We manage the UK’s numbering resource (through publication of the National Telephone Numbering Plan)1 and set out several requirements on communications providers in relation to the allocation and adoption of telephone numbers.2

Ofcom does not have the power to direct organisations to use particular number ranges for their services. Therefore, beyond the need to be consistent with the requirements in the Numbering Plan, the choice of number range for any given service or organisation falls outside Ofcom’s regulatory duties and is a matter for the organisation concerned.

Why is Ofcom making changes?

Ofcom is currently undertaking a major review of non geographic numbers—these are numbers such as 0845, 0870 and 0800. As part of this review we have concluded that the current system for non-geographic calls is failing consumers. The lack of transparency in the pricing of these calls has given rise to considerable confusion surrounding their purpose and cost. This has reduced trust in these services, and led to consumers making fewer calls and sometimes going to great lengths to call organisations in other ways, possibly at higher cost or inconvenience (eg going to banks rather than calling or delaying dealing with service faults).

We have also identified particular concerns about the impact of higher charges for these numbers from mobile phones on lower incomes groups who are more likely to live in mobile-only households, typically using pre-paid mobile services—15% of households are mobile-only and this increases to 26% in the DE socioeconomic groups.3 These groups therefore face more costly charges to call essential services on non-geographic numbers, such as some benefit offices, councils, utility services and doctor surgeries. This risks excluding these consumers, some of whom will be on lower incomes or benefits, from access to these vital services.

There are also problems in the wholesale supply of services. We have been presented with a series of disputes (and legal appeals of those disputes) about charges that companies are levying on each other within the supply chain for the services. These disputes cannot easily be resolved without greater clarity on what the preferred outcome for consumers regarding these charges should be.

Furthermore, the existing regulations relating to these numbers apply primarily to BT and this is no longer sustainable in a market where BT is no longer in a dominant position and where calls are increasingly made with mobile phones rather than landlines (54% of all voice calls were made using a mobile in 2012).4 Therefore the existing pricing messages (which can only provide a BT price) are not relevant to a significant proportion of consumers making these calls. For example, when advertising these numbers, companies can only refer to the following pricing message:

“calls cost Xp from a BT landline, other providers may vary and mobiles may cost considerably more.”

This means that if consumers want to know the actual cost of the call they will need to check with their individual provider in advance; something in reality that most are unlikely to do.

There is therefore a compelling case for substantial regulatory reform.

What changes are Ofcom intending to make?

To address the concerns outlined above, we intend to make fundamental changes to the structure of non-geographic numbers. We consider these changes will offer major benefits to consumers in terms of price transparency, encourage appropriate choices by companies, as well as encourage price competition and innovation in service delivery. We published our policy position setting out these changes in April this year.5 In April we also wrote to the permanent secretaries of all government departments advising them of the changes and possible implications for their departments.

We are intending to implement:

a requirement that 080 (Freephone) numbers are free from all telephones including mobiles;

a new tariff structure for other non-geographic numbers (including all 084, 087, 09 and 118 numbers) where the charges will be “unbundled”. This will mean the caller can identify the revenue retained by the phone company (the access charge) and that passed on to the recipient of a call and its telephone provider (the service charge); and

tariff principles which will simplify the structure of the access and service charges, and various transparency obligations for those charges, including a requirement for the service charge to be clearly presented whenever a number is advertised.

By applying a consistent, and clear, tariff structure to all 084, 087, 09 and 118 numbers we will also remove some of the existing confusion specific to 0845/0870 numbers. These numbers were historically linked to “local” and “national” call rates through regulation on BT. However, that link has fallen away over time, particularly with the changing role of BT in the market. Consequently significant confusion about the price of these numbers has developed—our changes will remove that confusion and will encourage use of the 03 range, which costs the same as calling a UK landline (see below).

When will the changes come into effect?

As part of the April policy position we also consulted on the amendments to legal instruments required to implement these changes (as well as some remaining aspects of our analysis). We intend to issue a final statement in the autumn.

These changes will require a significant amount of work to implement, particularly at the wholesale level, with communications providers having to make changes to their billing systems. In addition some companies may choose to migrate to alternative number ranges. We have therefore allowed an implementation time of 18 months. This means the changes are likely to come into effect in spring 2015.

We recognise that it has taken some time to reach a conclusion to this review. However, this is a very complex area and the changes will affect virtually every business in the UK, some very materially, as well as all telephone users across the country. We have therefore needed to make absolutely sure that the changes we were proposing were practicable, cost effective, and would achieve our aims of reducing consumer confusion and increasing transparency and competition.

Impact on Government Departments

As mentioned above, following the publication of our policy position in April we wrote to the permanent secretaries of all government departments in April to advise them of our likely changes and ask that they nominate a named person to liaise with Ofcom to discuss the possible implications for their department. We heard back from and have since met with most, but not all departments and feel confident that those we have met understand the changes and what action they need to take.

No departments, or any companies, using these numbers will be forced to change their number. As noted above, it is not within Ofcom’s powers to direct companies, or government departments, which numbers they can use for their services. Our primary aim in this review is to ensure that the charges for non-geographic numbers are made clear to consumers.

However, users of these numbers may decide that, in light of these changes, they would prefer to use a different number range for their service. In that case departments may look to complete any migration at the same time, or ahead of, the likely implementation of the changes in spring 2015.

Those departments that decide to remain on their existing number ranges will need to take the following into account:

The changes to 080

In order to make 080 numbers free from mobiles as well as fixed lines there will need to be an increase in the wholesale charges made between telephone providers for these calls. Therefore Government departments using 080 numbers will see an increase in the rate they pay on a per minute (“ppm”) basis for receiving calls to their 080 number.

Currently the amount they pay for receiving calls (on a fixed line) is 0.5ppm plus any additional amount charged by their telephone provider for hosting the 080 number. When the changes to 080 come into effect, we expect the charge for receiving mobile originated calls is likely to be between 1.5–2.5ppm (again plus any hosting charges from their provider). The overall financial impact on the individual government department of this change will depend on how many calls they receive, as well as the proportion of fixed vs. mobile calls they receive.

We advise departments to discuss with their telephone providers to understand the likely impact of the changes on their costs.

Advertising the service charge for 084, 087 and 09 numbers

Any departments using these number ranges will be required to advertise the service charge applicable to their number where their number is advertised. For example this could be a message similar to the following:

“This call will cost you 2 pence per minute, plus your provider’s access charge.”

Departments will therefore need to ensure that this message is displayed on websites, printed literature, advertisements etc (there will not, however, be any requirement for a pre-call announcement to this effect). Departments will need to allow time within the 18-month implementation period to arrange for the re-printing or replacement of any materials to include this pricing message.

Communicating the Changes

The changes we intend to introduce are significant. We recognise the central role that Ofcom has to play to both communicating the new regime, and in co-ordinating the communication activities of stakeholders. We will therefore be undertaking a major public awareness and industry information campaign.

We will be developing communication materials to help explain the changes, including setting up a dedicated website to provide advice to the public and industry. We will, for example, be sharing these materials with MPs (and devolved representatives) to help explain the changes to their constituents and some government departments have expressed keenness to provide links to our dedicated website on their own web sites to ensure consumers see consistent messages.

We have already begun a process of stakeholder engagement to ensure all parties are aware of the changes and start preparing for them. This engagement includes industry, consumer groups and companies using the numbers, including government departments.

This work is ongoing and will continue throughout the 18-month implementation period.

Explanation of Revenue-sharing Arrangements

Revenue sharing is permitted on all non-geographic number ranges referred to above, with the exception of the 03 range which has been specifically designated in the National Numbering Plan as a range where the charges are linked to charges for landline numbers (01 and 02 numbers) and therefore revenue-sharing on this range is prohibited.

Revenue sharing means that there is additional revenue within the call, ie revenue beyond the normal telecoms costs of connecting a call. On the higher rated numbers such as 0871 and 09, this revenue sharing mechanism is used as a way of making micro-payments for services and companies using these numbers will receive a direct payment for each call they receive.

For the lower charged 084 numbers, however, revenue sharing does not necessarily mean that the company/department using the number receives a direct payment for each call. Instead the additional revenue in the call is often used to offset the cost of providing call handling services.

For example, for a department using a 03 number, they might be paying their telephone provider 1.5ppm for each call they receive. However, the same service provided on a 0845 number would cost them nothing. This is because the additional revenue in the call has been retained by the department’s telephone provider to cover the call handling costs for the department (instead of the department contributing towards those costs).6

Under our proposed changes, the revenue-sharing element of the call (the service charge) will be directly visible to consumers, because companies/departments using the number will have to advertise that charge. There will, however, be no requirement to break down exactly how much of the service charge is retained by the telephone provider and how much goes directly to the company or department using the number.

03 Numbers

The 03 number range was introduced in 2007. It is designed to offer organisations a non-geographic number with national access to their services at call prices which are the same as geographic calls (with callers also being able to use their in-bundle minutes when calling these numbers).

The 030 sub-range is specifically reserved for not-for-profit organisations, charities and public bodies—Ofcom and a number of other public bodies use this range for their services, including the BBC and the Department for Transport. We have also reserved the 0345 and 0370 ranges for those organisations currently using 0845 and 0870 numbers who want to migrate to the same number on the 03 range. Some departments, including HMRC, have started to migrate their services to this range.

29 August 2013