Service Charge Caps for 09 and 118 Services

Introduction

1.1 In April 2012 we consulted on a set of proposals designed to address identified market failures in the provision of non-geographic calls .

1.2 In that consultation we provisionally concluded that substantial restructuring of the existing regulatory controls on the use of non-geographic numbers was required in order to address these market failures and to ensure its future as a vehicle for the delivery of services to consumers.

1.3 Our key proposals were to set:

• Maximum retail prices for :
  • Freephone (080 and 116 numbers) to be free from all telephones, fixed and mobile; and
  • 03 to become the only non-geographic number range linked to the price of a call to a geographic number (i.e. the 01/02 number ranges);
• A new tariff structure for other non-geographic calls: which involves splitting (and making transparent to consumers) the money that is paid to their phone company (the Access Charge ("AC")) and the money that is paid to cover the costs of routing and managing the non-geographic numbers, the cost of the receiving the call service and, where this occurs, payment for the service the consumer is receiving (the Service Charge ("SC")). This will apply across the majority of non-geographic number ranges (in particular those that involve revenue-sharing) to ensure greater transparency for consumers and enhanced competition among communication and service providers.

1.4 In the April 2012 Consultation we considered that it was appropriate to set price caps on the SCs for 084 and 087 numbers for the purposes of differentiating the number ranges in the interests of consumer price transparency. For the same reason, we said that there should be a price cap on the SC for 09 numbers but that the level at which such a cap should be set required more detailed consideration in a subsequent consultation. We said that we would also look at the case for a cap on the SC for 118 numbers in our subsequent consultation this is that consultation.

Current regulation

1.5 The 09 number range provides access to premium rate services ("PRS") such as entertainment, chat and adult entertainment services. It can also provide a payment mechanism for other inexpensive services (such as TV voting).

1.6 Ofcom does not currently impose retail caps on the price of calls to these numbers. However, BT is subject to a Significant Market Power condition the NTS Call Origination Condition - which restricts the amount of revenue that it can retain from the price it charges for calls to 09 numbers. The effect of this obligation is that it abides by the designation in the Numbering Plan that it should charge consumers no more than £1.53 (including VAT) per minute for any call to an 09 number from a BT landline. While calls from a mobile to PRS numbers generally cost significantly more, other fixed communication providers have generally followed BT's prices.

1.7 However, while the BT restrictions do not apply to other communication providers, the controls on BT's revenue retention have led to a de facto constraint on outpayments to the organisations providing these services, so that they receive no more than £1.45 per minute for calls. It is this restriction on the outpayments which constrains the range of services provided over PRS calls.

1.8 The 118 number range was introduced in September 2001 to allow for competition and innovation in the provision of directory enquires ("DQ") services. Ofcom does not apply retail caps to the price of calls to 118 numbers, nor are they within the scope of BT's NTS Call Origination Condition. The prices for these calls can therefore vary significantly between both fixed and mobile providers, and can be substantially higher than those on the 09 range.

1.9 Calls to both 09 and 118 are subject to regulation by PhonePayPlus ("PPP") via the PPP Code of Practice . This imposes a number of consumer protection measures, including:

• a mandatory industry Registration Scheme which requires all organisations in the premium rate industry to register their businesses and services on the Scheme;
• a prior permissions regime where certain defined PRS are required to obtain PPP's written permission before operating the service (the prior permissions regime); and
• a requirement on the Terminating Communications Provider ("TCP") to withhold service outpayments to service providers for 30 days after the call was made.

Proposals

1.10 While there are some characteristics of the market that may naturally constrain the level of charges likely on the 09 range, on balance we consider that it is in the interests of both consumers and service providers ("SPs") that we impose a price cap on the SC.

1.11 We consider that such a cap will have a positive impact on confidence in the market, reduce the potential for fraud and bill shocks for consumers and help Originating Communications Providers ("OCPs") to minimise their risk of bad debt.

1.12 This consultation sets out a range of cap structures and levels. In light of the substantial changes proposed for the non-geographic calls regime, we consider it is appropriate to be conservative in setting such limits.

1.13 Accordingly, we have proposed a cap of £5 per call and £3 per min for 09 calls. It is worth noting that these new limits do not lead to the automatic increase in revenue for existing PRS services on 09 numbers. The expectation is that they will be utilised by companies and charities seeking to offer services not currently possible under the current limits and to enhance current services.

1.14 In relation to 118 numbers, our assessment is that the advantages of caps at the same levels as for 09 also apply. We are therefore proposing that we set equivalent maximum prices for the SC for these calls. Although in a small minority of cases the retail prices and the amount of revenue that is passed through to the TCP for 118 calls are currently higher than the caps we are proposing, we consider that the benefits of a cap in terms of reducing the incidence of bill shock and fraud outweigh the potential impact on service availability and innovation.

1.15 Finally, we have also considered options for additional consumer protection measures, such as pre-call announcements, for calls to these numbers. While we would welcome stakeholder views, our analysis suggests that at the SC levels proposed no additional consumer protection measures (above that imposed by PPP) are required.

1.16 Our impact assessment of the proposals we are making is contained in the analysis in Sections 4 and 5 of this consultation.

Implementation

1.17 While there is some demand from SPs for changes to existing limits (applying to BT) as soon as possible, we do not consider that in the light of existing market failure concerns such a change would be appropriate. The cap on the SC is inextricably linked to our proposals to unbundle the AC and SC, and we consider there could be significant consumer protection concerns (particularly in relation to transparency) if the cap were partially increased in isolation. Any decision for a cap on the 09 and 118 number ranges will therefore be implemented alongside the unbundling proposals (currently expected to be 18 months after publication of the Statement on unbundling).

1.18 We are currently intending to set out our decision with respect to the proposals contained in this consultation within the Statement on our unbundling proposals. Should we consider, as a result of responses to this consultation, that it would be appropriate to implement additional consumer protection measures on the 09 and/or 118 ranges, we would anticipate that we would consult on the detail of any such proposal during the course of implementation period following the publication of our Statement.

1.19 Details of how to respond to this consultation are set out in Annex 1. The deadline for responses is 19 September 2012.

Responses

Responder name	Type
118.pdf (PDF File, 282.0 KB)	Organisation
118118-response.pdf (PDF File, 103.6 KB)	Organisation
action4.pdf (PDF File, 128.9 KB)	Organisation
AIME.pdf (PDF File, 145.6 KB)	Organisation
BT-response.pdf (PDF File, 275.0 KB)	Organisation

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