BT reduces cost of ringing mobiles; Terminate the Rate gets hopes up on savings

Terminate the Rate is right to proclaim reductions in the cost of ringing mobile phones from BT landlines, but its figures are somewhat over-egging the pudding if taken as being the actual savings customers will enjoy.

It correctly states that evening calls will fall from 7 pence per minute to 5.3 pence per minute and that this is a 24 percent reduction. This does not take into effect BT's Call Set-up Fee of 12.5 pence (per call), its policy of rounding call durations up to the next whole minute and rounding call charges up to the next whole penny.

I have prepared a spreadsheet which calculates the charges and actual percentage reductions for calls up to 10 minutes at 30 second intervals.

A 1 minute evening call has dropped by 10 percent and a 3 minute call at the same time will cost 14.7 percent less. These are hardly anywhere near the 24 percent headline figure now are they?


Call Set-up Fees (or sometimes called "Call Connection Fees"), whole minute billing and rounding each individual call charge up to the next whole penny means that we actually pay more for every minute of a chargeable call than the published "per minute" rate would have us believe.

If a butcher were to round up the weight of meat to the next 500g interval, Trading Standards would be down on him or her like a tonne of bricks. But Ofcom sits idly by and allows calls of 1 minute and 1 second to be rounded up to 2 minutes. That's 59 seconds of call that are billed for but are never made!

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Contact: Dave Lindsay
E-mail: dave {at} saynoto0870 {dot} com

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Notes to Editors

1. Mobile termination rates fell on 1 April from around 4.7 pence per minute to 2.66 pence per minute and subsequent reductions are due in coming years.
2. A termination rate is a charge one telephone network operator imposes on another for connecting (known as terminating a call). For example, when a BT customer calls a '3' mobile, 3 imposes a termination charge on BT for connecting the call.
3. I thoroughly support the campaign to drive down mobile termination rates, but not the way in which Terminate the Rate campaign misleads in this case.
4. Virgin Media has a similar policy (see www.virginmedia.com/callcosts).

What are local call rates and how have they changed over the years?

Back in the day when BT was the only provider of telephone services, there was only one local rate, and that was that. Today, however, different rates for local calls are available, as determined by tariff.

In this posting I explain how it used to be and how it is now.

What is local rate?

“Local rate”, “local call rate” and variants thereof is the price a subscriber pays to ring a landline number in the local area.

What was it like when we all made our calls with BT?

Because everyone made their calls with BT and there was only one pricing tariff, local rate was the same for everyone. At that time, one could therefore refer to the local rate.

There was also the national rate which was greater than the local one.

What was the cost of calling 0845 numbers?

The 0845 numbers existed at that time, and, by regulatory dictate, BT charged the same price as it did for local calls to ring them. This is where the association between 0845 numbers and “local rate” came from; it only ever applied on BT’s old tariff.

How has local rate changed?

Today there are many providers, all charging different rates for local calls. Many landline users have an inclusive package, which means that they pay zero pence per minute for local calls. Alternatively, they are chargeable on a ‘per minute’ basis.

The vast majority of landline subscribers don’t pay more to call landline numbers outside their local call area. Where calls are inclusive, local and national ones are inclusive, and where they’re not, the same ‘per minute’ rate applies to both.

Mobiles, by their very nature, only charge a single rate for calls to landlines, irrespective of distance.

All in all any consumer’s “local rate” is likely to be the same as his or her “national rate”. As such, I usually talk about “geographic rate” as use of the term “local rate” has the tendency to re-enforce the myth that it’s more expensive to call longer distance.

How do 0845 call rates stand now in relation to local calls?

They cost more than local and more than national geographic calls (remember that local and national calls now cost the same on respective tariffs). Mobile users are hit the hardest with charges of up to 41 pence per minute and calls not come from bundled minutes.

Higher 0845 rates are to be expected due to the fact it costs the telephone companies more to connect calls to them than with geographic calls. BT’s call rates are held artificially low by regulation.

The need for 03 numbers

In the days of BT-only telecommunications, 0845 provided companies with a way of having a number that wasn’t associated with any particular location, but which cost no more to call than a local number.

The 03 numbers don’t relate to any geographic area and their call rates are pegged to geographic call charges with all telephone providers. They are suited to the multi-provider market, unlike 0845 numbers which are only linked for customers of BT.

Conclusion

Whilst the continued use of the local rate term is not incorrect, it is important to be mindful that:

• national calls don’t cost more than local ones;
• 084x calls cost more than geographic calls;
• all 03 numbers cost no more than geographic calls on any individual tariff, as dictated by regulation.

Who is responsible for setting the cost of a telephone call?

The ban on phone numbers that cost more to call than geographic or landline numbers within the NHS has had little effect.

One of the biggest reasons for this appears to be the way in which PCTs are taking at face value assurances, given by GPs’ telephone providers, on the cost patients incur when dialling their numbers.

In this posting, I explain, using some simple logical thinking, why these supposed affirmations are in reality totally worthless.

Who is responsible for setting the cost of a telephone call?

Many GPs imply that it is down to their own telephone provider. They cite phone provider assertions that patients pay the same as a geographic or local call.

For this to be the case there would have to be regulation which all telephone call providers must obey. They would all have to be prevented from charging more, but there is no such rule!

The telephone system as a whole allows customers of one telephone provider to ring those of other providers. It also allows the call providers to set call rates independently of one another.

So it follows that it is the caller’s telephone company that sets the call’s price and not the receiver’s.

What about local or geographic call charges?

In the days when we all placed our calls with BT, it charged national calls at a higher rate than local ones. Crucially, as everyone made calls with the same provider, which offered only one tariff, there was only one price for local calls. So it was valid to refer to the local rate.

Also, at that time, 0845 calls were charged by that sole provider at the same rate as it did local calls.

But today, there are many providers offering many tariffs, charging different rates for local calls. So there is now no single local call rate that applies to everyone. Additionally, charges for 0845 calls are generally greater and are therefore no longer aligned to these varying local rates.

Furthermore, with today’s tariffs, in most cases all geographic calls, whether they are local to the caller or national, cost the same on any one particular tariff at any one time.

What about call charges?

We don’t have to look very far for some examples of major providers charging more for 084x calls than local calls. Virgin Media charges just over 10 pence per minute for 0844 g6 and 0845 numbers, yet geographic and 03 calls are inclusive or just below 9 pence per minute.

T-Mobile charges 41 pence per minute to 0844 and 0845 numbers, but geographic and 03 calls are inclusive or up to 30 pence per minute, depending on tariff.

Load of twaddle

To summarise:

• It’s the caller’s provider that sets the cost of the call.
• 0845 calls are no longer charged the same as a local call.
• Calls to 0844 and 0845 numbers are more expensive than local calls.

So the suggestion that a 0844 or 0845 number costs no more than a geographic call is utter twaddle!

How do 084x numbers work?

It’s been more than six months since I made my inaugural and only posting, so I thought I’d resurrect the blog with some questions and answers on the subject of revenue sharing phone numbers.

The first question is how do 084x numbers work? I explain below how all users of these numbers benefit financially from calls they receive.

Yes, you read correctly; all organisations that use 084x numbers benefit financially from their use. Some users may cite that they aren’t paid directly for calls made to their numbers, but they are no less off the hook.

How’s that so?

Let me dispel the myth that the issue with 084x numbers is simply solely about organisations grappling for revenue share payments. The process at the heart of all this and is what permits the revenue share payments and decreasing them or even turning them off has absolutely no effect on it.

Put simply, the amount of revenue coming out at the receiver’s end cannot be varied in order to affect the amount the caller pays.

It’s important to appreciate that the connection between the calling and receiving parties may span more than one telephone company, due to the parties being customers of different companies. Picture that connection as being two tin cans joined together with a piece of string, where the tin cans are the respective parties’ telcos.

The receiver’s telco levies a fee on the caller’s telco for every minute that the string (call) is connected between the two cans. For calls to 084x numbers, there is a surcharge attached.

Telephone companies that we make calls with take this premium into account when setting their prices. They pass it on to their customers (callers) in higher call rates. This is much the same as in the shops where retailers charge customers more for premium goods.

BT call rates are the exception to this as it is governed by regulation that keeps them very low. It is anticipated that this anomaly will be addressed by the regulator in the not too distant future.

Coming back to what happens when a call is made, at the receiving party's end of the chain (or the string in the analogy), the telephone company that operates the 084x number can offer its client service(s) as a result of this subsidy. In some cases it also results in an out-payment of revenue, which is essentially cash-back.

Thus, it is the choice of type of telephone number that determines the level of subsidy that the user wishes to derive from its customers and not some choice of whether it wishes to receive revenue payments directly or not.

What levels of subsidy do users of 084x numbers benefit from?

With 0845 numbers, it’s around a penny a minute and with 0844 numbers it is about 4 pence per minute for the most common type, known as “g6”, which are also the most expensive to call. These figures are approximations taken from information publically available on the BT Wholesale Carrier Price List, which contains the rates telephone companies are charged to interconnect with one another.

Since August 2009 there has been no subsidy available to users of 0870 numbers. When there was, however, it was about 6 pence per minute. Now we see why many of those users migrated to 0844 numbers or higher rate 0871 numbers!

DWP - The case for 03 telephone numbers

On Tuesday, the Secretary of State for Work and Pensions announced that all telephone lines operated by her Department will be reviewed. Many of them use 0845 numbers which carry a subsidy to the Department.

This blog post is a summary of the full document which you can download by following the link at the foot of this post. I've put them together to explain why the 0845 numbers should be abandoned and replaced with ones from the 03 range.

There is a growing list of public sector bodies using 03 numbers, including the DVLA, NHS Change4Life and 12 police forces. Sir David Varney recommended 03 numbers, following his review of public services in 2006.


The DWP has recently set a precedent by making its 0800 numbers free to call from mobile telephones. It has done a deal with the mobile operators, who normally charge their customers a premium for calling “freephone” numbers. This is sterling work by the Department and it should now look at moving its 0845 contact numbers over to 03 ones.

However, Jobcentre Plus has recently introduced a new 0845 number which will, by the end of April, have taken the place of the local numbers of each of its branches. See DWP’s December edition of “In Touch”. Whilst one part of the DWP is moving forward, another is going in the opposite direction!

Why does the Department for Work and Pensions use 0845 numbers?

The DWP’s justification for using 0845 numbers is because more people pay less than those who pay more than a geographic or 03 call. This suggests that it has a rather blinkered view of the issues.

What are 03 numbers?

The cost of calling 03 numbers can be no greater that of ringing a “normal” geographic number and this rule holds for all landline and mobile operators’ services. There are no subsidies for call recipients either. The charge to the caller is the incidental cost of making a phone call and is like the cost of a stamp needed to send a letter. For more information, see Ofcom’s briefing What are…03 numbers?

Reason for change number 1: The cost of connecting a 0845 call attracts a premium, but BT’s retail charges are not allowed to reflect this. Therefore, BT varies from other providers…

Whether what the Department gives as its reason for using 0845 numbers is true or not misses the point. Retailers usually pass on the costs they incur in providing goods and services to end consumers and this is also the case with 0845 numbers.

A call to a 0845 number carries a premium or subsidy to the end recipient for which most call providers reflect in higher call rates. BT is the exception to this rule because it is limited on the margin it can take with 0845 calls by virtue of the “NTS Condition” regulation, but this does not apply when its customers call geographic or 03 numbers. Granted, a few other providers do mirror BT’s perverse discount by offsetting their costs elsewhere, but this is down to competitive pressures.

Any body which promotes 0845 as being cheaper is thereby promoting BT as its preferred call provider that its customers should subscribe to. A public sector service should not be showing commercial favouritism in this way.

Reason for change number 2: Citizens who pay more incur premiums far larger than the savings enjoyed by the alleged majority…

Before I proceed, I would like to make clear that I do not condone the DWP notion that it’s acceptable to impose premium charges on some, so as to offer discounts to others. However, if this is how the Department wishes to play it, then I am drawn to make the following observations.

The cost of calling a 0845 number is up to 3.4 pence per minute less than a geographic call from a BT tariff, which is the biggest differential (that I am aware of) for landline users. Mobile subscribers pay a premium of up to 40 pence per minute. With this in mind, I hope that the DWP gave the latter group a greater weighting when it worked out which group is the winner in this contest.

Citizens on the lowest incomes often rely solely on a mobile for their telecommunications and means that the DWP’s policy acts to penalise them the most.

Reason for change number 3: The DWP receives a subsidy from callers from its use of 0845 numbers…

The Department receives a subsidy directly from service users, a fact which is highlighted in the statement from the Contact Council (see the PDF). No amount of denial of receipt of a “revenue share” in the form of cash affects this process; it is by the design of 0845 numbers.

The DWP is wrong to levy a service fee in this way; it should be funded from the public purse.

Reason for change number 4: The DWP’s 0845 telephone numbering plan rests on regulation imposed on BT Retail, which is likely to be removed soon…

BT’s 0845 retail charges are not more than its geographic ones because of the NTS Condition regulation which was designed to facilitate the propagation of “value-added” services, such as pay as you go dial-up internet services. Ofcom intends to review the NTS Condition within a year and the result may well be that it will be done away with.

Should this happen, then the DWP will not be able to use its current defence of 0845 being cheaper for some. This is because 0845 calls will most probably cost either the same as or perhaps more than a geographic call.

Reason for maintaining the status quo: To allow customers of BT (and of a few others who mirror its perverse pricing structure) to benefit from a discount, thereby handing a competitive advantage to these particular private operators…

Some may be of the opinion that the Department is in the pocket of BT, and is helping it in its goal of dominating the market in residential telecommunications services, particularly in view of the following facts:

• That its chosen telecommunications service supplier is BT.
• The NTS Condition was introduced to allow “micro-payments” to flow to call recipients when most people made their calls with BT. The DWP disregards this as justification but benefits anyway and, crucially, chooses to take advantage of the side-effect whereby BT prices are abnormally low, thus handing it a competitive advantage.
• Other providers reflect the subsidy paid to the DWP in their retail prices, although a tiny few do decide to offset their costs elsewhere in order to compete with BT’s perverse retail discounts.
• The DWP alleges that it has its cake, but is silent about the fact that it eats it as well. That is, its callers pay less and at the same time it benefits from the subsidy from them.
• In response to a Parliamentary question on Wednesday, Work and Pensions Minister Jim Knight said that 70% of callers ring from a BT landline, which obviously means that the rest must call from another landline provider, a public payphone or mobile telephone. This raises the following:
  • Whilst analysis of callers’ phone numbers (CLIs) will show whether they called from fixed or mobile devices, how does the DWP know which callers ringing from landlines placed their call with BT and which didn’t?
  • Not everyone calling from a BT landline enjoys a saving. As the Minister pointed out, calls to 0845 numbers are “free” for those subscribed a BT Calling Plan which has an inclusive element that is engaged at the time of calling. Thus, the 70% figure includes both those who save and those for whom it makes no difference whether they call via a 0845 number or a geographic/03 one.
  • How does the Department factor in those who are ringing from a friend’s BT landline because of the prohibitive cost of making contact from their own mobile (or landline)?

Download full paper “DWP - The case for 03 telephone numbers” (PDF 74KB)