Changes to 0870

Statement published 23|04|09

Summary

Overview

1.1 The purpose of this Statement is to implement some important changes to the regulation of calls to 0870 numbers. The 0870 number range has been a source of significant and increasing concern for some consumers for several years. There has been a considerable amount of confusion amongst consumers over the cost of calls to 0870 numbers, compounded by the misleading advertising of these calls as being ‘national rate’ calls when in fact they have often been considerably more expensive than calls to geographic numbers (01 and 02 numbers). There has also been a growth in consumer complaints about 0870 calls and signs of an increase in consumer scams on 087 numbers, which threaten further to undermine consumer confidence in the range.

1.2 Ofcom is committed to addressing these issues and we are therefore proceeding with proposals designed to improve pricing transparency and reduce the potential for scams on the 0870 range. The changes are designed to facilitate a restoration of the linkage between the pricing of 0870 calls and calls to geographic numbers. We believe that Communications Providers (‘CPs’) themselves bear the primary responsibility for ensuring that consumers have a sufficient understanding of call prices to enable them to make rational decisions about using them. We will therefore look to CPs, working within the new regulations, to take steps to secure an improvement in consumer understanding of 0870 pricing. We will actively monitor the effectiveness of the new framework and will consider further action if required.

Our consultation proposals

1.3 In April 2006, we concluded a major review of our policy on 08 numbers and announced a package of measures designed to improve consumer protection, pricing transparency and to address some industry problems that led to persistent disputes that Ofcom was called upon to resolve ^(-1-) .

1.4 Our proposals included a major change to the way 0870 calls are charged designed to improve price transparency and consumer protection for 0870 calls. We proposed bringing charges for 0870 calls into line with national calls to geographic numbers so that callers would normally pay no more to call an 0870 number than to call a geographic number. If CPs decided not to do this and charge more than their national rate for a 0870 call, it was our original intention that they would have to provide a free-of-charge announcement telling the caller the price of the call.

1.5 As this change would be disruptive for the businesses that use 0870 numbers we gave extended notice of this change in order to give them time to prepare.

1.6 In May 2008, we published a further consultation^(-2-) (the ‘Consultation’) proposing an change to our proposals after it had become apparent that pricing announcements might interfere with some automated equipment that use 0870 numbers. Instead of inserting free-to-caller announcements at the start of each call to an 0870 number, the new requirements build on the present obligations on CPs contained in General Condition 14 in relation to the publication and promotion of NTS call prices.

1.7 Under the new requirements CPs will be obliged to include a prominent statement in advertising/promotional material whether or not 0870 calls are included in inclusive packages and bundles. One other new requirement is that CPs will only be permitted to refer to 0870 calls as ‘national rate’ in their advertising and promotional material and retail bills where their 0870 and national geographic prices are the same as for geographic calls.

Consultation Responses

1.8 We received 48 responses to our consultation: 26 from consumers, 14 from CPs and related organisations and 8 from businesses that offer services on 0870 numbers (‘Service Providers’ or ‘SPs’) and related organisations.

1.9 Stakeholders’ views on our proposals were polarised in common with responses received to Ofcom’s earlier consultations on 08 numbers. In their responses, consumers generally argued that the proposals did not go far enough to address their concerns about 08 numbers, which were often linked to a belief that revenue sharing should not be permitted at all for some types of services. In contrast, CPs and those involved in the provision of services on 0870 numbers contended that our proposals went too far, that they were either unnecessary or too disruptive, and that they could prejudice the viability of many services.

1.10 Most consumer respondents wanted Ofcom to implement additional measures to reduce the price of calls to 0870 numbers and were therefore in favour of the alternative option considered by Ofcom in the Consultation under which all CPs would be required to charge 0870 calls at geographic rates. Although consumer respondents generally regarded the proposals as a ‘step in the right direction’, some thought they would not be effective at improving pricing transparency since communications providers would not be compelled to charge 0870 calls at geographic rates.

1.11 Although there was some support amongst CP and SP respondents, most opposed our proposals arguing that the cessation of revenue sharing (as a result of the proposals) would be very disruptive for SPs and CPs as it would cause many SPs to move their services to other number ranges that support revenue sharing. CPs and SPs doubted that the proposals would be effective at improving pricing transparency particularly as they expected a significant proportion of CPs to charge 0870 calls above geographic rates.

1.12 Several CPs were also concerned about the impact on competition in the market for 0870 call termination and hosting (i.e. the services provided by CPs to SPs) of removing 0870 calls from BT’s obligation to originate 0870 calls on regulated terms. They thought that whilst BT continued to have Significant Market Power in wholesale call origination, BT should continue to be subject to this obligation to prevent it from competing unfairly in the 0870 call termination and hosting market.

Interconnection charges dispute

1.13 Under the new arrangements (i.e. following implementation of Ofcom’s proposals for 0870 calls) the level of call termination charges that BT would pay other CPs for terminating 0870 calls on their networks is subject to commercial negotiation. These charges are the subject of a dispute between BT and other CPs which had been referred to Ofcom for consideration^(-3-) (‘the 0870 Dispute’).

1.14 Ofcom suspended its work on the 0870 Dispute on 18 December 2007 pending judgement from the Competition Appeals Tribunal (‘CAT') on an appeal in relation to Ofcom’s determination of another dispute, which raised issues relevant to the determination of the 0870 Dispute (‘the TRD appeals’) ^(-4-).

1.15 In the light of the stakeholder comments and the linkage with the 0870 Dispute, we decided to defer finalising our conclusions on our consultation proposals until we were in a position to issue a revised draft determination of the 0870 Dispute. This was in acknowledgement of comments made by a number of respondents to the May 2008 Consultation who felt unable to judge the likely success of the policy objectives without knowing the level of the revised 0870 termination payments.

1.16 Work on the 0870 Dispute recommenced following publication of the CAT’s final judgment in the TRD appeals on 15 August 2008 and the draft determination was published on 23 April 2009 ^(-5-).

Impact assessment

1.17 In view of the delay we have updated our impact assessment and have also made several changes in response to stakeholder comments. These changes include new estimates of the cost of updating vehicle signage that were previously treated qualitatively, a revision to our estimate of the benefits of improved pricing transparency and other more minor adjustments (such as inflation adjustments).

1.18 The reduction in termination payments and the likely cessation of revenue sharing as a result of our proposals will lead a significant proportion of SPs to move their service to other number ranges such as 0844 and 0871 that continue to support revenue sharing. We consider that the bulk of this migration has already occurred in anticipation of the implementation of our proposals (which as discussed above have been delayed beyond the original implementation date). We anticipate there may a limited amount of further migration following publication of this statement.

1.19 Our final assessment of these proposals is that there is a strong case for confirming our proposals as even at the upper end of our estimates for further migration the measures would be likely to deliver a net benefit within a few years.

Implementing our proposals

1.20 Following consideration of the consultation responses, the revisions to our impact assessment and in the light of our provisional findings in the draft determination of the 0870 Dispute, we have decided to implement our proposals.

1.21 We think the changes are in the interests of consumers and, by improving pricing transparency and consumer confidence in 0870 numbers they will ultimately benefit CPs and SPs as well.

1.22 Complaints received by Ofcom from consumers support our view that there is a rising level of consumer concern about 08 numbers generally and 087 numbers in particular. Further given the disparity between 0870 call charges and geographic call charges and the persistence of misleading advertising involving the use of the ‘national rate’ term we think that retaining the current arrangements would be likely to lead to a continued decline in consumer confidence in the range. We are therefore determined that price transparency and consumer price awareness should be improved for 0870 calls.

1.23 In our view, there is a good chance that the reduction in termination payments resulting from our proposals will lead a significant proportion of 0870 calls to be charged at geographic rates and that this, together with the new price publication requirements in General Condition 14, will lead to a marked improvement in pricing transparency. This should contribute to an improvement in consumer confidence in the 0870 range. Consumers should also benefit from lower prices for 0870 calls.

1.24 We note, in this context, BT’s decision to incorporate 0870 and 0845 calls in its retail call packages from 16 January 2009 in anticipation of the implementation of these 0870 measures. At least one other major operator has since responded with a similar policy and we expect the competitive pressure will encourage other CPs to follow suit. Furthermore, the termination rates proposed in our draft determination of the 0870 Dispute have been set at a level to enable BT and others to continue with this pricing strategy.

1.25 The measures will also address industry concerns about revenue uncertainty stemming from the linkage between termination payments and BT’s retail charges under the current arrangements and in time should lead to a reduction in interconnection disputes.

1.26 We also consider that adopting these proposals in the first instance, rather than compelling CPs to charge 0870 calls at geographic rates, is better aligned with our duty to adopt the least intrusive method of achieving our regulatory objectives.

1.27 We plan to carry out market research to assess the impact of these measures on consumer pricing awareness. If it becomes apparent after 12 months that the new rules have not had a significant effect on consumer price awareness, our intention is to return to this issue and consider what other measures may be appropriate.

Changes to the relevant regulatory provisions

1.28 In the light of stakeholder comments we have made the following modifications to our proposals:

• redrafted the new designation for 0870 calls in the National Telephone Numbering Plan to more closely align it with that of 03 numbers for clarity;
• made a minor revision to the wording of the modification to General Condition 17;
• revised the text in Annex 2 of General Condition 14 so that the requirement to state whether the price of call bundles includes NTS calls is removed. (The obligation in relation to 0870 calls remains); and
• made revisions to the text of paragraphs 3.1, 3.2(iii) and 4.3 of Annex 2 of General Condition 14 to communicate the revisions more clearly.
• This document contains:
  • a summary of the consultation responses and our comments;
  • a summary of our Impact Assessment and details the changes that we have made in response to stakeholders comments;
  • a review of the relevant legal tests for our proposals;
  • notifications of modifications to relevant regulatory rules, in particular:

a modification to the NTS SMP Condition (Condition AA11) in Schedule 1 of Annex A of the “Review of the fixed narrowband wholesale exchange line, call origination, conveyance and transit markets” to remove 0870 calls from the scope of the condition thereby removing the regulatory support for revenue sharing;

a modification to the designation for 0870 calls in the National Telephone Numbering Plan (‘the Plan’) and the associated numbering application form;

a modification to General Condition 17 to make the new designation for 0870 calls applicable to all communications providers rather than just BT as would otherwise be the case;

modifications to General Condition 14.2 and the associated annex 2 to specify how prominence should be given to the charges for 0870 calls and to set out the information which customers must be given in relation to prices for 0870 calls in advertising and promotional material, including whether or not they are included in call packages; and

minor clarificatory amendments to Annex 1 of General Condition 14 relating to the requirement for communications provider to have a Code of Practice for premium rate service calls (see paragraph 2.59 for details).

Implementation Arrangements

1.29 Ofcom has decided that the new 0870 regulations should come into effect on 1 August 2009. This will allow time for Ofcom to publish a final determination concluding its consideration of the 0870 Dispute before the new arrangements come into effect.

Footnotes:

  1.- NTS: A Way Forward, published 19 April 2006. http://www.ofcom.org.uk/consult/condocs/nts_forward/statement/

  2.- Changes to 0870, published 2 May 2008. http://www.ofcom.org.uk/consult/condocs/0870calls/

  3.- http://www.ofcom.org.uk/bulletins/comp_bull_index/comp_bull_ocases/open_all/cw_963/

  4.- CAT’s judgments dated, respectively, 20 May 2008 and 15 August 2008 in relation to Ofcom’s determination of disputes between T-Moblie and BT, O2 and BT, Hutchison 3G and BT and BT and each of Hutchison 3G, Orange Personal Communications Services and Vodaphone in relation to fixed to mobile and mobile to mobile termination, [2008] CAT 12 and [2008] CAT 19 at http://www.catribunal.org.uk/238/Judgments.html

  5.- http://www.ofcom.org.uk/consult/condocs/resolve0870calls/

The full document is available below