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NTS: A Way Forward

Summary

1.1 On 28 September 2005, Ofcom published a consultation entitled “NTS: A Way Forward” (‘the September 2005 Consultation’), setting out a number of proposals for the regulation of Number Translation Services. The deadline for responses was 6 December 2005. Ofcom has reviewed its proposals in the light of the responses received, which numbered 1308, and this Statement sets out Ofcom’s conclusions.

Proposals

1.2 Ofcom has decided to implement measures proposed in the September 2005 Consultation, with some modifications to take account of points raised by respondents. The measures are as follows.

Restore geographic link for 0870 calls

1.3 Ofcom proposes to amend the National Telephone Numbering Plan (‘the Plan’) to establish the principle that every Originating Communications Providers (‘OCP’) should charge no more for 0870 calls than national calls to geographic numbers. OCPs who wish to charge higher rates for 0870 calls will be required to make a free-to-caller price pre-announcement at the beginning of the call, informing the caller of the cost of the call. This option will be available to BT, as well as to other OCPs. Such pre-announcements would have to specify the precise basis on which the call will be charged e.g. in pence per minute or per call; generic announcements will not be considered sufficient.

1.4 The convention will mean that, if you are on a call package where national calls to 01 and 02 numbers cost, for example, 3 pence per minute in the peak period, calls to 0870 numbers during the same period will cost no more than 3 pence per minute, unless a pre-announcement is made. Similarly, if you are on a call package where national calls in the evenings or at weekends are free, then in the absence of a pre-announcement calls to 0870 numbers will also be free at these times. Ofcom recognises that many Communications Providers (‘CPs’) make no distinction in their pricing plans between national and local calls to geographic numbers. In these cases, the convention will mean that 0870 calls should cost no more than calls to all geographic numbers.

1.5 This convention will apply to all calls including those made from all fixed lines, including payphones, and from mobile phones. It will not mean that CPs will charge the same as each other for 0870 or geographic calls – each provider will be free to set its own retail prices for these calls. But it will mean that, unless there is a price pre-announcement, an 0870 call will cost no more than an equivalent national call to a geographic (01 or 02) number.

Remove 0870 calls from the scope of the BT NTS Call Origination Condition

1.6 Ofcom proposes to remove 0870 calls from the scope of the BT NTS Call Origination Condition (‘the NTS Condition’), which requires BT to originate and retail these calls on behalf of Terminating Communications Providers (‘TCPs’). This will remove the regulatory underpinning for revenue sharing on the 0870 range, and allow interconnect arrangements for these calls to be aligned more closely with those for geographic calls with BT purchasing call termination from TCPs rather than originating and retailing 0870 calls on behalf of TCPs. This is likely to lead to a reduction in the payments, which OCPs make to TCPs for terminating 0870 calls, and to lower prices at the retail level. BT will continue to be subject to the other regulatory remedies to its Significant Market Power (‘ SMP’) in the markets identified in Oftel’s Review of the fixed narrowband wholesale exchange line, call origination, conveyance and transit markets[(-1-)].

Timetable for implementation of 0870 proposals

1.7 Ofcom intends to introduce the above changes for 0870 calls 18 months after the publication of its forthcoming statement on numbering policy. Ofcom published a consultation Telephone Numbering – Safeguarding the future of numbers[(-2-)] (‘the Numbering Review’) on 23 February 2006. The closing date for responses to the consultation is 4 May 2006. Ofcom hopes to be able to publish a statement setting out its conclusions in relation to that consultation in July 2006.

1.8 Ofcom recognises that the changes to the 0870 range will be disruptive for CPs, for resellers of inbound NTS services and for many of the Service Providers (‘SPs’) which use 0870 numbers. It will be important to allow the parties involved a reasonable amount of time to plan for the changes, in order to reduce the costs associated with their implementation.

1.9 The Numbering Review Statement is significant because it will provide additional information that will be useful to SPs who may wish to move from an 0870 number to a number in another range. In particular, it will set out Ofcom’s plans for opening up new non-geographic number ranges, at different price levels and for different service types. In Ofcom’s view, this information is sufficiently important that the 18-month planning period should not begin until the Numbering Review Statement has been published.

1.10 As the Numbering Review Statement is currently scheduled for publication in July 2006, this would suggest that the changes for 0870 are likely to come into effect in January 2008. Ofcom has no plans to change the pricing and interconnect arrangements for 0870 calls before the end of the 18-month period.

Two-year review for 0845 calls

1.11 Ofcom has no plans to make any changes to the pricing and interconnect arrangements for 0845 calls of its own initiative over the next two years. Revenue sharing will continue to be supported on 0845 numbers, which are still heavily used for dial-up internet traffic. Ofcom intends to publish a further consultation document reviewing the arrangements for 0845 calls within two years of the publication date of this statement. That consultation document will review the case for restoring the geographic price link for 0845 calls and for removing 0845 calls from the scope of the NTS Condition. In particular, it will consider whether dial-up internet traffic volumes have fallen to a level, at which the benefits of making these changes are likely to exceed the associated costs. Ofcom would encourage interested parties to take account of the likelihood that, if these changes were to be introduced, revenue sharing would no longer be possible on the 0845 range.

Extend premium rate services regulation to the 0871 numbers

1.12 Ofcom intends to extend the regulatory framework for premium rate services (‘ PRS’) to include 0871 numbers. The Independent Committee for the Supervision of Standards of Telephone Information Services (‘ICSTIS’), the regulatory body for PRS has agreed in principle to regulate 0871 numbers and Ofcom will modify the Premium Rate Services Condition (‘the PRS Condition’) to extend the definition of Controlled PRS to include the 0871 range so that Ofcom has backstop powers to support ICSTIS. The 0871 range will not be subject to the same level of regulation as the premium rate 09 number range. However, it will be subject to requirements designed to improve price transparency and to provide an appropriate level of consumer protection. Amongst other things, SPs using 0871 numbers will be required to include information about the price of calls in advertisements and on promotional material. In order to minimise the risk that consumers will be deterred from making 0871 calls by the association with more expensive 09 services, Ofcom will ask ICSTIS to consider the possibility of a distinct branding for 0871 regulation. ICSTIS will take the lead in developing regulatory proposals for the 0871 range and will consult on its plans before they are introduced. The intention is that the new regulatory provisions for the 0871 range will come into effect at the same time as the proposed changes for 0870 calls.

Extend PRS regulation to adult services currently provided on 08 numbers

1.13 Ofcom intends to amend the Plan to clarify that adult services should only be provided on the 0908 and 0909 number ranges. As a result of this clarification, adult services currently provided on 08 numbers will have to move to the designated 09 ranges, where they may continue to be provided at prices of less than 10 pence per minute. ICSTIS has agreed in principle to regulate these additional services. Ofcom intends to amend the PRS Condition to extend the definition of controlled PRS to include all adult services, regardless of price. This will extend Ofcom's backstop powers to support ICSTIS. Ofcom will introduce these changes before the end of 2006.

Use of 08 numbers by public bodies

1.14 As indicated in the September 2005 Consultation, Ofcom believes that public bodies should consider carefully whether it is appropriate to use 084 and 087 numbers in place of Freephone or ordinary geographic numbers. Ofcom believes that, at present, it is inappropriate for public bodies to use 084 or 087 numbers exclusively (i.e. without at a minimum giving equal prominence to a geographic alternative) when dealing with people on low incomes or other vulnerable groups. Once the geographic link has been restored for 0870 calls, consumer concerns are likely to ease in relation to 0870 numbers. Ofcom is also consulting, in the Numbering Review consultation, on a proposal to open up a new number range (the 03 range), for SPs who would like to use a non-geographic number but which do not require a revenue share. Ofcom believes that this new range, on which revenue sharing would be banned, would if introduced be well suited to meeting the requirements of many of the public bodies currently using 084 and 087 numbers.

Better visibility of NTS tariffs

1.15 The lack of pricing transparency and low level of price awareness has been a major cause of consumer concerns about NTS calls. As one of several measures aimed at tackling this issue, Ofcom intends to amend General Condition 14[(-3-)] (which relates to Codes of Practice) to require all CPs to give greater prominence to NTS call prices on websites, published price lists and promotional material. This proposal is the subject of a separate Statement[(-4-)].

1.16 As noted above, one of the aims of bringing 0871 calls within the remit of PRS regulation is to ensure that these numbers are subject to ICSTIS requirements in respect of pricing information. In addition, Ofcom has contributed to the Advertising Standards Authority (‘ASA’)/Committee on Advertising Practice (‘ CAP’) guidance to advertisers on advertising NTS numbers. Ofcom will continue to work with ICSTIS and ASA/ CAP on this issue.

The 0871 range

1.17 Ofcom does not intend to change the pricing and interconnect arrangements for 0871 calls at the present time. However, further consideration will be given in the Numbering Review to the possibility of amending the Plan so that the price points selected by TCPs/SPs for 0871 calls apply not only to BT, but also to a wider range of fixed and possibly mobile CPs.

The 0844 range

1.18 Ofcom does not intend to change the pricing and interconnect arrangements for 0844 calls at the present time. However, further consideration will be given in the Numbering Review to the possibility of amending the Plan so that the price points selected by TCPs/SPs for 0844 calls apply not only to BT, but to a wider range of fixed and possibly mobile CPs.

1.19 Ofcom also intends to monitor complaints and other indicators to see if consumer concerns arise on the 0844 range so that appropriate measures to increase the level of consumer protection could be introduced if required.

Differences to proposals set out in the September 2005 Consultation

1.20 As noted above, the measures described above are broadly similar to the proposals set out in the September 2005 Consultation. The main differences concern:

1.21 The nature of these changes and the reasons for making them are as follows.

The duration of the interim period for 0870

1.22 In the September 2005 Consultation, Ofcom proposed to restore the geographic link for 0870 calls and remove 0870 calls from the scope of the NTS Condition after a 12-month interim period. Following the consultation, Ofcom now proposes that the interim period should be for 18 months from the date of publication of the Statement on the Numbering Review.

1.23 Ofcom is aware that a number of respondents, especially consumers, will be opposed to this extension of the interim period. In Ofcom’s view, however, it is justified for the following reasons:

Price ceilings for 0870 calls during the interim period

1.24 In the September 2005 Consultation, it was proposed that during the interim period the designation of 0870 numbers in the Plan would be amended so that the current prices from BT lines would be decoupled from the standard rates for geographic calls and replaced with designations that reflect the current prices. This would in effect have placed a ceiling on 0870 prices from BT lines, ensuring that they did not go up in nominal terms during the interim period. BT also offered to provide a voluntary undertaking to the effect that it would not reduce the rates paid to TCPs for 0870 call termination during the interim period.

1.25 Ofcom no longer proposes to apply these measures, for the following reasons:

Price ceilings for 0845 during the two-year review period

1.26 The measures proposed for 0845 were similar to those described above in relation to 0870. The only difference was that, in its draft undertaking, BT indicated that it would review the factors used in calculating the termination rates for 0845 calls half way through the two-year review period.

1.27 Ofcom no longer proposes to apply the proposed measures, for the reasons given above in relation to 0870 calls.

Responses to the September 2005 Consultation

1.28 Ofcom received 1308 responses to the September 2005 Consultation. The main arguments raised and Ofcom‘s responses to them are summarised below. The points raised are covered in more detail in sections 3, and 4, and in Annexes 1 and 2.

Consumers

1.29 1207 responses were received from consumers. These revealed very strong support for the proposal to restore the link between 0870 and geographic call charges, principally so that 0870 calls would be included in call packages.

1.30 Consumers’ views were divided on the subject of revenue sharing on the 08 range, with some regarding it as a form of deception and others being neutral on the subject or supporting the availability of revenue shares, provided the consumer was given good value for money. This diversity of opinion is consistent with the results of the market research undertaken by Ofcom in 2005, which were described in the September 2005 Consultation[(-5-)]. In Ofcom’s view, the proposed package of measures strikes a reasonable balance, as regulatory support for revenue sharing will be removed on the 0870 range, and probably in due course on 0845, but there will continue to be scope for revenue sharing, accompanied by an appropriate level of consumer protection, on other 08 number ranges.

1.31 Consumers were also divided in their views on call price pre-announcements, with some seeing them as a useful way of providing price transparency and others being opposed to their use. In particular, there was marked opposition to the proposed pre-announcement option for 0870 calls, consumers seeing this as a loophole that would allow CPs to continue charging more for 0870 calls than for geographic calls. Ofcom does not consider the pre-announcement option to be a ‘loophole’. The main purpose of restoring the link to geographic call charges is to improve transparency, rather than to reduce the price of calls, although improved transparency could well lead to lower prices as a result of more effective competition. Ofcom remains of the view that free-to-caller pre-announcements would provide a reasonable degree of price transparency and that this option should be available to OCPs who wish to charge more for 0870 calls than for geographic calls.

1.32 There was a very strong desire among consumers for 08 call charges to be more straightforward and transparent. For many, this is linked to the desire for 0870 calls to be included in call packages, and to the view that 0870 calls should cost no more than geographic calls.

1.33 Consumers tended to agree that PRS regulation should be extended to cover 0871 calls, though many thought this could be achieved by requiring SPs to move their services from 0871 numbers to the 09 range. In effect, this would mean closing down the 0871 range. Ofcom does not consider that it would be proportionate to take this course of action, as it is not clear that there would be any significant benefits in terms of improved price transparency, and the associated costs of migration would be considerable.

1.34 A number of consumers felt that Ofcom should take the same action on 0845 as was proposed for 0870. Ofcom can see the arguments for restoring the geographic link and removing the 0845 range from the scope of the NTS Condition but believes that these measures would be premature. As around 85% of call minutes to 0845 numbers is still accounted for by dial-up internet services, all of which would have to move to other ranges if revenue sharing ceased, the benefits of restoring the geographic link would be limited and the associated migration costs would be relatively high. In Ofcom’s view, this option should be reviewed again in two years’ time.

1.35 Some consumers felt that Ofcom’s proposals did not go far enough in addressing their concerns about the use of NTS numbers by public bodies, arguing for example that such bodies should be required to use geographic numbers. Ofcom does not consider that it has sufficient grounds to justify preventing public bodies using revenue sharing NTS numbers. It does, however, believe that its proposal to open up the 03 range for services, which do not require a revenue share, could help to address consumer concerns, as this range could provide a suitable home for many public services. Ofcom is consulting separately on this proposal in the Numbering Review consultation.

1.36 Some consumers were concerned about call waiting times, and about having to pay twice for customer service e.g. they should not have to pay a higher call charge to complain about the shortcomings of a product or service they have already paid for. Whilst Ofcom has some sympathy with this view, it is not Ofcom’s role to dictate how businesses in sectors of the economy unrelated to communications may charge their customers. However, Ofcom does have a role in seeking to ensure that there is an adequate level of price transparency, particularly in relation to revenue sharing calls, and an appropriate level of consumer protection. Many of the proposed measures are designed to achieve these objectives.

1.37 Consumers were generally very supportive of the proposal to extend PRS regulation to adult services currently provided on 08 numbers.

Communications providers, resellers and service providers

1.38 For the most part, CPs, resellers and SPs were very strongly opposed to the proposals set out in the September 2005 Consult ation, and particularly to the proposed restoration of the geographic link and the removal of 0870 calls from the scope of the NTS Condition.

1.39 For TCPs, the proposals for 0870 were seen as an over-reaction to the concerns of a minority of consumers, which would damage unnecessarily a very successful industry, and reduce the service levels provided to consumers. UKCTA, which represents many of the larger CPs (other than BT) argued that Ofcom should intervene to regulate the retail price of 0870 calls made from BT lines in order to stabilise termination payments. Ofcom rejected this proposal in the September 2005 Consultation, on the grounds that it would be inconsistent with Ofcom’s commitment to use the least intrusive mechanism available for achieving its objectives.

1.40 In support of its response, UKCTA commissioned an assessment of Ofcom’s proposals by economic consultancy Indepen, which concluded that additional benefits could be achieved if the approach proposed by UKCTA was followed. Ofcom does not accept the findings of the Indepen report, principally because they depend critically on Ofcom regulating BT’s prices for 0870 calls. As noted above, Ofcom does not believe this approach would be consistent with its regulatory principles.

1.41 For a number of OCPs, the proposal to extend the 0870 pricing convention in the Plan so that it applies to all CPs would amount to unjustifiable price regulation of non-dominant firms, and would be an unwarranted extension of regulation. Ofcom rejects this view. In Ofcom’s opinion, the proposals are consistent with Ofcom’s statutory duty to promote consumer interests, and with the role of the Plan in providing transparency to consumers regarding the services available on different number ranges.

1.42 In contrast to the other CPs, BT was broadly supportive of the proposals, and particularly of the proposal to restore the geographic link and remove 0870 calls from the scope of the NTS Condition. It was concerned that the delay in taking action on 0845 calls would create market uncertainty, which could be damaging to both the industry and consumers. Ofcom accepts that the uncertainty over the future of the 0845 is undesirable, but believes that it has given as clear an indication of its future plans as would be appropriate at the present time.

1.43 One respondent – Flextel – put forward a detailed proposal for a price labelling system, under which consumers could find out the price of any call in advance, by dialling a 3-digit prefix followed by the number they wish to call. Ofcom considers that this proposal has some merits, and may warrant further consideration as a means of improving price transparency for all types of call (not just NTS). In the context of NTS, however, Ofcom has considerable doubts about the extent to which consumers would actually use such a service, and does not believe that it would be a more effective way of providing transparency than the measures proposed in the September 2005 Consultation.

1.44 A number of resellers oppose the proposals because of the damaging effect they could have on their businesses, and on their customers. Ofcom recognises that its proposals will indeed have a very disruptive effect on a small number of businesses that depend heavily on revenues from the provision of inbound 0870 services. However, Ofcom remains of the view that, as it is the recipient of the call (the SP) who decides whether or not to purchase inbound call management services, it is not unreasonable that the same party should also be responsible for paying for the services they have opted to receive. Ofcom has also estimated that the scale of the impact on resellers is unlikely to be sufficient to alter the balance of costs and benefits that will flow from the implementation of the proposals – the benefits are still likely to outweigh the costs.

1.45 A number of SPs also refer to the disruption that Ofcom’s proposals will cause, with several arguing that Ofcom has severely under-estimated the costs of number migration that will flow from its proposals for 0870. Ofcom has reviewed its migration costs estimates in the light of these responses, and made some amendments where they have been justified (details are set out in Annex 5). However, the resulting estimates still support the changes proposed for the 0870 range.

1.46 Several resellers and SPs expressed their concern that the 0871 range was not an adequate alternative to 0870 for those who want to continue revenue sharing, partly because international access is more restricted and partly because they believed that consumers are more wary of calling 0871 numbers. There was concern that consumer confidence in 0871 numbers would decline still further if 0871 were labelled as a premium rate range. Ofcom recognises that international access is more limited for 0871 than 0870, but the impact of this is small as only a very small proportion of 0870 traffic originates overseas, and Ofcom has begun talks with some CPs about improving 0871 access. In order to avoid possible negative associations with PRS calls, Ofcom will ask ICSTIS to consider branding the regulation of 0871 separately from existing PRS regulation.

Other respondents

1.47 Responses were received from a variety of other organisations, including other regulatory bodies and several not-for-profit organisations. The views expressed varied widely and a number of the comments made have been referred to above.

1.48 The Ofcom Consumer Panel (’the Panel’) believed that Ofcom should make improving pricing transparency the primary objective of its proposals. While supporting the proposal to restore the link between 0870 and geographic call charges, the Panel felt that Ofcom should go further, by requiring all OCPs to provide price pre-announcements for 08 calls, or restricting revenue sharing to the 09 range. The Ofcom Advisory Committee for England also felt that revenue sharing should be restricted to 09 numbers. Ofcom remains of the view that a general requirement to provide price pre-announcements would be disproportionate, and that the costs of confining revenue sharing to the 09 range, in terms of migration costs and reduced service availability, would outweigh the prospective benefits.

1.49 ICSTIS indicated its agreement in principle to the extension of its remit to include 0871 calls, subject to detailed consideration of the scope of the regulation, the operational implications and the funding arrangements.

1.50 The Telephone Helplines Association (‘the THA’) expressed concern over the effect of the proposals on helplines, many of which currently use 0845 and 0870 numbers and depend to some extent on the revenue shares they receive. Ofcom intends to give further consideration to the possibility of opening up a new revenue sharing number range, specifically for use by not-for-profit organisations as part of the Numbering Review.

Relationship to the proposals in the Numbering Strategy Review

1.51 As noted above, one of the issues being considered in the Numbering Review is which number ranges should be opened up to accommodate future demand for revenue-sharing services. The conclusions reached on this issue will provide useful information for SPs who wish to move off from the 0870 range in order to continue revenue sharing. For this reason, the 18-month interim period for 0870 calls will not begin until the Numbering Review statement has been published.

1.52 In addition, the Numbering Review proposal to open up the 03 range for use by organisations not requiring a revenue share should help to address consumer concerns over the use made of NTS numbers by public bodies. The Numbering Review will also consider whether the pricing designations for 0844 and 0871 should apply to CPs other than BT, and whether a new revenue-sharing range should be opened up for use by not-for-profit organisations.

1.53 The Numbering Review consultation proposed that the 08 range should generally be used for revenue sharing services. Ofcom recognises that the measures proposed in this document for 0870 calls, which would almost certainly put an end to revenue sharing on this range, are not consistent with the broader Numbering Review vision. If similar measures were to be introduced for 0845 calls, they too would be out of step with that broader vision.

1.54 Ofcom does not consider that these inconsistencies undermine either the conclusions reached in relation to 0870 or the validity of the proposals set out in the Numbering Review consultation. In Ofcom’s view, the measures proposed for 0870 are a balanced response to a specific set of issues, which have developed over the past decade. They are designed to address current problems on a legacy range, and can readily (if not neatly) sit alongside the broader vision of the Numbering Review.

Next steps

1.55 The main milestones involved in implementing these proposals are as follows:

Footnotes:

1.-http://www.ofcom.org.uk/consult/condocs/narrowband_mkt_rvw/nwe/

2.-http://www.ofcom.org.uk/consult/condocs/numberingreview/

3.-General Condition 14, set out in Part 2 of the Schedule to the Notification setting general conditions under section 45 of the Communications Act 2003, published by the Director General of Telecommunications on 22 July 2003, as amended

4.-http://www.ofcom.org.uk/consult/condocs/nts_info/statement

5.-Ofcom published its research in the document entitled Number Translation Services: A Way Forward - A report of the key findings of two research studies conducted by HI Europe and MORI on behalf of Ofcom. http://www.ofcom.org.uk/consult/condocs/nts_forward/ntsrsc.pdf. Also see paragraphs 5.23 and A6.28 in the September 2005 Consultation.

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