Advice to NHS Bodies 2 - Useful information

Advice to NHS Bodies concerning the cost of telephone calls

2 - Useful information

To support advice being provided with reference to the recently published Directions to NHS bodies concerning the cost of telephone calls, I provide some useful additional general information that may help correct some common false assumptions.

I must urge verification of these comments to be made with Ofcom and all relevant telephone companies.

Contents 

Who sets charges?
What is revenue sharing?
What is "local" rate?
What is a geographic number?
What is premium rate?
Are calls to 084x numbers ever cheaper than calls to geographic numbers?

(Details in support of the final item may be found here)

Who sets charges?

The charge for calling a particular type of number is set by each provider of telephone service as part of their contract with their customer. There is nothing that the body renting the number, nor their telephone service provider, can do to change this. They can only select the type of number that best meets their needs, noting the relevant terms of the tariffs of the various companies providing telephone service to their callers.

Different ranges of non-geographic numbers have different charging characteristics.

• It is only the 03xx range that is subject to charge regulation for all providers. Charges must be no greater than that for calling a geographic number. This covers landlines, mobiles and payphones, extending to the terms associated with pre-paid and "unlimited" packages also.
• BT alone is subject to regulation of its charges for calling all other non-geographic (landline) numbers. Those who choose non-geographic numbers therefore can be assured of what BT will have to charge its customers.
• This control however only covers BT and it has no bearing on which calls are included in any packages, nor on call setup fees. Any influence that BT's rates may have on the market for calls from landlines does not apply to calls from mobiles as BT no longer participates in this market.
• BT is not regulated in its charges for calls to geographic numbers, nor its policy regarding inclusion in packages.
• Barring the perverse effect of the regulation on BT, and the impact this has on the market, one would expect telephone providers to pass the cost of the termination fees incurred on calls to 084x and other ranges, to callers. Indeed, this is generally what is found. In cases where these costs are not carried by callers to the numbers on which the fees are imposed, they will be reflected elsewhere in the overall charging structure.

What is revenue sharing?

Calls to all non-geographic numbers, including all 084x numbers, but excluding all 03xx and in reverse for 080x, are subject to revenue sharing. Part of the revenue earned by the "Originating Communications Provider" (OCP) is shared with the "Terminating Communications Provider" (TCP). This is achieved through the payment of a termination fee between the respective telephone companies. The rate of the termination fee is set (per call minute) according to the number called.

This mechanism is used for calls to mobiles, as addressed by the "Terminate the Rate" campaign. It provides the basis for the provision of Premium Rate Services and operates in the same way, although on a lesser scale, for all 084x numbers.

There is nothing that the caller can do to affect the way this operates. Neither can the call recipient effect any change to the arrangement, after having selected a number from a particular range.

It would normally be seen that where revenue sharing is in effect this would provide a financial benefit to the call recipient and cause a cost to be incurred by the caller.

In the case of Premium Rate Services the benefit is very clear, as it covers the cost of providing the service as well as a profit margin. It is generally assumed that mobile users benefit from the fact that their provider receives income from their incoming calls, so as to enable them to receive incoming calls at a minimal or zero cost. Users of 084x numbers benefit, perhaps in cash payments from incoming calls, but always from the fact that the charge for their service would (all things being equal) be greater were it not for the termination fee payments received by their provider.

The cost to callers is clearly visible in the first two cases. In the latter case there is confusion. Some of this is caused by the effect of the regulation on BT, which denies BT a proper margin when originating these calls, thereby artificially suppressing the relative total charge. As no other provider is subject to this constraint, any suggestion that BT charges are typical, whilst others "may" vary is clearly absurd. In some cases telephone companies fail to reflect the refinement of the many different categories of number, and charge an excessive premium based on the worst case. The fact that there is heavy competition based on the rates for calling geographic numbers tends to force these down, exacerbating the differential.

What is "local" rate?

Historically there was a distinction between the charges for "local" and "national" calls from landlines, although never from mobiles (which cannot have a locality by definition). Whilst the distinction between local and national calls does still exist, since 2004 the vast majority of residential tariffs have offered both at a common rate.

This change is recognised by the ASA and by most trading standards bodies, who have taken action against those using the term "local rate" when describing the cost of telephone calls.

There are a very small number of callers for whom the distinction makes a difference (e.g. subscribers to Kingston Communications, T/A Karoo, in Hull). It is however now generally accepted that the base point to use when referring to the cost of a telephone call is that of a call to a geographic number (Ofcom uses the term "UK rate").

The connection between the charge for calling 0845 numbers and "local rate" was once a key feature of the telephone calls market, but this no longer exists, neither in regulation nor in practice. It sadly remains as a suggestion in the naming of some rates, but this does not imply that the actual connection in charging remains.

The term "lo-call" has been coined to refer to those number ranges which are subject to relatively low premium charges. The phonetic similarity with "local" is perhaps deliberately misleading. This term is now, as it has always been, nothing more than marketing hype.

What is a geographic number?

With the exception of a few such numbers used by Internet Service Providers, a geographic number is any number commencing 01 or 02. Calls to numbers beginning 03 must (by regulation) be charged at the same or a lesser rate. Since the distinction between "local" and "national" rate was abolished, it is the rate for calling a geographic number that represents the base point for UK telephone call charging - a "normal" call.

What is premium rate?

Any rate that includes a premium charge, such as that applied to fund a revenue share, may fairly be referred to as a "premium rate". There is however the danger of confusion with a specific technical term defined in the Communications Act of 2003 - "Premium Rate Service" (PRS).

Those using numbers in ranges deemed by Ofcom as being for PRS are classified as providers of telecommunications services and thereby fall within the terms of special regulations administered on behalf of Ofcom by PhonePay Plus. Ofcom has recently extended the list of number ranges covered by the PRS regulations to include those beginning 0871/2/3.

One must be careful to understand that simply because a number is not classified as being for use in the provision of "Premium Rate Services", calls to it may nonetheless be subject to a "premium rate".

Ofcom will shortly be reviewing the situation regarding 084x numbers. One of many options open to it is to also add some or all of them to those covered by the formal classification of PRS.

Are calls to 084x numbers ever cheaper than calls to geographic numbers?

Every telephone service provider (OCP) must cover the cost of the revenue share incurred when placing calls to 084x number somehow. One would therefore expect such calls to always be more expensive than calls to geographic numbers. Whilst this is generally true, it is not always the case.

BT encourages its customers to subscribe to inclusive packages and markets its call plans on the basis that customers will select a plan to be in effect during the times when they make calls. Cheaper plans are offered for those who do not make calls during the working day or during the working week. Over recent years this has produced two interesting effects in respect of the differential. Both of these derive from the fact the regulation of BT's charges for calls to 084x numbers limit the margin it may take on such calls to deny any profit.

Firstly, BT has been steadily increasing the charge for calling geographic numbers, when outside the period covered by the inclusive package, at the rate of 30% per annum. This has led to the situation where the unregulated rate for calling geographic numbers (outside the terms of a package) has now overtaken even the highest regulated rate for calling 084x numbers. In effect, the penalty premium charge for calling outside the terms of a package exceeds the premium to cover the revenue share.

Secondly, because the rate of the termination fee on 0845 calls is relatively low and BT is limited to the most miniscule margin on these calls anyway, it has been able to make these (but not 0844, on which the termination fee is much greater) calls inclusive in packages whilst only making a relatively modest increase to the cost of the package.

As BT has to make a fair return on its business overall, it is perhaps reasonable to assume that the sharp increases in per minute rates for non-inclusive calls to geographic numbers and the now heavy "call set up fee" of 9.05 pence, which applies to all non-inclusive calls, are effectively cross-subsidising the cost of inclusive 0845 calls and the comparatively cheap rates charged for all 084x calls (0845 when non-inclusive, 0844 is never inclusive).

BT's strong market position in landline call provision has led some others to copy its structure. As their rates for 084x calls are not forced low by regulation, they can only match BT by cross-subsidy.

Details of the which tariffs this does and does not apply to are found here.

Comments

Please advise me if any of the information given above is found to be false or misleading.

David Hickson
Tuesday, 05 January 2010