Working with Ofcom for Consumer Empowerment

About Flextel working with Ofcom  Working with Ofcom for Consumer Empowerment

Background

Flextel has been operational since 1993. Flextel is an ethical company and wishes to deliver fair value, not only to its Customers, but also to those consumers calling Flextel services. To this end Flextel works closely with Ofcom both directly and indirectly through the Numbering Group of its trade association the Federation of Communication Services.

Flextel also regularly attends and supports the work of Ofcom's NTS Focus group and over recent years, Flextel has been heavily critical of Ofcom, as it strongly disagrees with its current media-driven tactical approach to regulation. Indeed Ofcom's approach has been so poor, that it has led, not only to highly intrusive and mis-targeted Telecom's micro-regulation, but also to dangerous interventions, which have even threatened life and property. Fortunately Ofcom has now acknowledged the risk and reversed its intervention on 070 and avoided the same problem for the 0870 service.

Strategic versus Tactical Regulation

Flextel has been working very hard to convince Ofcom to take a more strategic approach, not only to protect citizens and consumers, but also to protect its own customers from unjustifiable harm who, after all, are equally consumers, albeit of call termination services.

Flextel's Core Business

Flextel provides flexible Intelligent Number services. These include:
  • 0844 Numbers
  • , 0870 Numbers,
  • 0871 Numbers, and
  • 070 Personal Numbers.

It retails these numbers to consumers, who enjoy free service and no call charges, whatsoever. So they never receive a bill from us, unless they decide to buy a cherished personalised number. Instead, Flextel is paid for its call services by its wholesale arrangements with BT and other retailers, including mobile networks e.g. Vodafone. As a wholesaler, or Terminating Carrier Provider(TCP), Flextel is not permitted to control or set the retail price for calls to its services from other networks. This is set by mobile and fixed line telephone companies, taking into account Flextel's wholesale call pricing. Flextel adjusts its wholesale call prices by negotiation with retailers (e.g. via BT wholesale services) or, in the special case of 0870 and 0845, as regulated by Ofcom.

A Fair and Efficient Competitive Telecom Market

It is fairly obvious that good Price Transparency is a prerequisite for the correct operation of an efficient and therefore, highly competitive market. This is one key factor that leads consumers to feel confident within a market and trust its suppliers. Unfortunately, consumers are provided with very poor call pricing information, exacerbated by the complex and varied bundled tariffs, which are rarely directly comparable, plus other factors set out below.

So, in practice, these tricky tariffs result in widespread consumer confusion and so the outcome is very poor retail call price competition. This means that big retailers, such as mobile networks, can get away with charging what they like for 08xx calls and the influence of Flextel's wholesale pricing is very weak and so has little impact on mobile call charges, particularly the pre-paid services commonly used by vulnerable citizens, such as the homeless.

Consumer Perception

In 2006, as part of the evidence base for Ofcom’s strategic review of telephone numbering, a report of the findings of a major programme of consumer research was published. This was intended to provide a comprehensive understanding of attitudes and behaviours of residential and business consumers. Figure 4.1 on page 13 of this report shows that the perceived mean cost of calling 0870 from BT was over 35 pence per minute. In fact the real figure was only 7.5 pence, with the wholesale price being under 6 pence. Why was this perceived price so very different from the actual price?

Retailers

As mentioned earlier, in all fair and free markets, wholesalers and regulators cannot set, nor should be allowed to set, Retail Prices. Retailers such as BT, C&W, Vodafone, O2, Everything Everywhere {Orange+T-mobile}, 3, Virgin & Tesco and and many other smaller Originating Carrier Providers (OCP), set the retail price to call Flextel services in an "apparently" competitive market. So only they, not Flextel, are responsible for delivering good price transparency, to their retail customers, for calls made to Flextel's Intelligent Number services.

This retail pricing freedom, coupled with carefully managed "bundled call packages" appears to be designed specifically to bamboozle the consumer. So bad is consumer confusion, that mobile providers are able to get away with charging for freephone calls. These are paid for by, not only the mobile customer, but also by the called party (the freephone number customer). In fact these calls cost the mobile networks less than "on-net" mobile-mobile calls, since BT pays them for sending the call through them. Why then should mobile providers be able to charge more for freephone calls than mobile to mobile calls? Answer, call price competition isn't working.

The mobile retailers are also free to over-price 0870 calls, charging anything up to £1 per minute, in which case about 94 pence is pocketed by them, with not more than 6 pence being handed to Flextel. All other 0870 providers receive exactly the same sum, due to Ofcom regulations. The other 08xx numbers get the same shabby and rapacious treatment. Indeed, recently T-mobile announced yet another price hike for 0870. This was followed by 02 also increasing its 0870 prices and blaming Ofcom to boot! It is hard to see how any mobile network can justify these prices. It is worth commenting here that Flextel and others have warned Ofcom that its most recent proposals will do nothing to stop 0870 being overcharged, even freeing BT to do the same. So Ofcom's latest effort on 0870 does nothing to protect consumers, but actually makes it worse. So this disgraceful practice can be expected to continue.


Call Price Labelling

Most retailers, in typical consumer markets, are obliged to label the price of each item (product or service) in a clear, simple manner, which can be easily accessed and understood. That way consumers can choose on price, before purchasing i.e before making a commercial transaction. Clear, understandable pricing information is typically delivered at, or just before, the point of sale.

Fixed and Mobile Phone Call Pricing

In the UK's free Telecoms market, in practice, consumers find out how much a call actually costs only after they have placed (purchased) a call. This is not the case elsewhere e.g. supermarkets, where the price is clearly and conveniently displayed in an unambiguous manner, including taxes, just before purchase.

Even the long established telecom retailers publish price tables that are both complex and opaque, to all but the highly numerate. For example, look at BT's Residential Price List. I am sure you'll agree, that this 30-page document is complicated and Flextel believes it to be wholly inaccessible to the average consumer. However, this document excludes important pricing information for special numbers, such as Freephone, Personal and NTS services. To get accurate pricing for these services, the BT's Residential and Business special number call price list must be consulted. This 60-page tome is a serious challenge to everyone, except rocket scientists. How then can Ofcom (and the EU commission) expect the market to function properly, with such dense price opacity?

Economists worldwide would agree that without good price transparency, there can be no effective competitive market. In today's telecom markets call pricing is so opaque that many consumers are confused as to how much they will pay and are unable to make a rational purchasing decision. So, most mobile consumers either find out that their pre-paid credit has been unexpectedly used up, or wait one month and view their bills with dismay. Both may have dialled an overpriced 08xx number, including the not-so-free, freephone calls. Article 8 (4d) of the EU Framework Directive calls for transparency of tariffs. This has yet to be widely delivered in the UK or anywhere in Europe. As a result of opaque pricing in European Telecoms, call price competition is a myth and the market therefore remains highly inefficient market. The evidence is the imposition of wholesale and retail price controls bu Ofcom at the EU.

Acknowledging the problem, the Commission of the European Union is taking at least some action. Driven by the office of Viviane Reding the commission has had to intervene and place controls on the retail price of mobile roaming charges. Ofcom has adopted a different approach and tried to impose controls on mobile and other wholesale termination tariffs, which has been challenged in the UK competition courts (CAT).

However, Flextel believes that price regulation is wrong, it just kills grass roots competition and is simply a symptom of market failure. Indeed, the imposition of retail and wholesale price controls by regulators is an admission of failure by the regulators themselves. So, Flextel considers that the EU and Ofcom are both wrong to try to regulate either retail or wholesale prices, which serve to distort or kill competition. Last year, the CAT strongly criticised Ofcom for its attempt to foist wholesale mobile termination rates, based on a ludicrous gains from trade argument. The CAT stated that this was a "serious error by OFCOM" and that "OFCOM ...committed an error of law". Desperate times indeed when a Regulator is driven beyond the edge of its powers and acts "unreasonably".

Flextel believes that what is needed, as a matter of urgency, is full and effective price transparency, instead of sticking plaster solutions. In simple terms Ofcom and the EU should deal with the underlying cause of excessive and rapacious pricing and regulate for effective competition. They can then sit back and let informed consumers and competitive market forces do the rest.

Consumer Protection from Unfair Trading Regulations 2008

These wide ranging Regulations became law on the 26th May, 2008 and apply to all business sectors. They are highly relevant to the malaise in the Telecom market. They support pricing information, as an important aspect of consumer protection. The regulations state (in terms of the definition of misleading actions) that:
"price or the manner in which the price is calculated" is a consideration "if it or its overall presentation in any way deceives or is likely to deceive the average consumer" such that "it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise".
Obviously placing a call is clearly a "transactional decision". Even in bundled call packages an "in-bundle call" uses up the bundle limit and therefore increases the likelihood of the limit being breached and costs being incurred. In any case many call types are outside such bundles e.g. freephone calls (that are charged on many mobile services, for apparently no good reason other than corporate greed). So deciding to place a call will depend on its price, which clearly should be to hand at the point of sale i.e. before a consumer decides to agree to pay for it by dialling (i.e. makes a transactional decision and places the call). The detailed regulations are available here.

Flextel's Proposal for Effective Price Transparency

For more than two years Flextel has offered a solution, which it believes might pave the way forward. Flextel's technical experts have shown a simple, and effective, low cost migration path from today's 'rip-off' market to a better, fairer future. Flextel has written to Ofcom suggesting this solution on more than five occasions, but Ofcom do not seem to be listening.

Ofcom argue that their General Conditions (GCs), requiring OCPs to provide clear tariff information, is adequate. I am sure you have seen the BT example above, which Ofcom claim fully complies with its complex regulations, and can agree that this approach is unacceptable. In fact the GC that covers Number Translation Service (0844, 0845 and 0870 and 0871 phone numbers) pricing have been in place since 2006 and are still not effective. So much so that, in 2008, Ofcom had to open a second investigation into compliance with General Condition 14.2.

Over the twenty years that have elapsed since opening up the market to competition. Tariffs have gradually become increasingly complex, but no one has seriously asked the question... "Can we deliver Call Price Labelling yet?" The answer is "of course we can!". Today, there is probably more computing power in your mobile phone, than in BT's billing system in 1984. In today's computer driven world call price labelling is not only feasible, but verging on the trivial. It all depends on the technical approach and, critically, choosing compatible tariff structures and compatible reseller incentive schemes.

To say we cannot deliver Call Price Labelling because the reseller and tariff structure are too complex is putting the "cart before the horse". With hindsight, the UK could have introduced this consumer protection mechanism soon after 1984. Then, the tricky tariffs, punitive 08xx pricing and random reseller deals would perhaps never have become so deeply rooted. It is simply unacceptable to state it can't be done because of established practice. I say to Ofcom, introduce Call Price Labelling, so giving the consumer the comfort of a simple call price check and simplified tariffs will follow.

Today finding out call prices is challenging at best. For example, to find out the price of a call is it reasonable, ethical or honest for consumers to have to consider...

        1. The time of day?
        2. The day of the week?
        3. How many free minutes are left in my bundled minutes call package?
        4. Is this a special number? e.g. 0500, 0800, 0845, 0844, 0870, 0871, 09xx or
        5. What country am I dialling? 00 xx
        6. Is the code included in my call bundle?
        7. Is it a mobile or fixed phone?
        8. Which network am I calling from?
        9. What is the call duration rounding on this call [T]? e.g. per minute, per seconds, per 10 second
        10. What is the call set-up fee [S]? 5p, 7p, 10p or £1 (see: 118xxx)
        11. What is the cost per minute[M]?
        12. What is the charge rounding[R]? 1p, 0.1p
        13. Is there VAT rounding?
        14. Now calculate the call for the estimated call duration [D]?
        15. Estimated cost = S+M*T*(INT(D/T)+1) /60
Then look up the latest complicated tariff sheet from a website or queue for a call centre agent!
... NO OTHER INDUSTRY WOULD PERMIT SUCH PRICE CONFUSION!

Flextel doesn't think its reasonable, but a misleading and a dubious practice!
Instead, what the Consumer needs is...
        1. To know the price of the call,
        2. At the point of sale i.e. at time of placing a call,
        3. On the communications tool to hand, i.e. their own phone or mobile...
          ... Not a complex website with tricky tariff tables or worse an old out-of-date leaflet or old bill!

As explained earlier, to empower and protect consumers and to gain an efficient telecoms market there must be good price transparency. It follows that the optimal method of delivering this is to let the consumer check the price of any call, before deciding to place it, in an accessible and convenient manner.

How can this be done? ...simple: From their own ordinary phone or mobile:

        1. Dial a common EU wide prefix (e.g. *, # or 10x)
          followed by desired phone number
          e.g. *0370-321-1000.
        2. Listen to the price and...
        3. If the price is too high,
          ... hang up and it has cost you nothing.
        4. If you find the price is acceptable
          ...dial the number.
          (some retailers may wish to allow the caller to simply hold for connection).
From a Mobile you could even:
        1. Text the number to a common EU short code text number (e.g. 104?).
        2. Receive the call price. All free of charge.

However, unsurprisingly, the incumbent and entrenched telecom providers have said it's all too complex and too expensive to implement. Are they to be trusted in this viewpoint, considering they might have a prejudicial interest in protecting market-share, using such rapacious pricing and complex opaque tariffs? Flextel believes this stance is nothing but a facade, designed to protect lucrative cash-cow interests.

But isn’t Flextel being too prescriptive?

Flextel would admit that its offered solution may still not be optimum for all stakeholders, but we challenge Ofcom to facilitate a proper, public debate involving all stakeholders, including consumers.

From Flextel's point of view it will stop some retailers charging up to £1 per minute for a call, that costs them less than 6p. CPL will expose rogue and rapacious corporate telecom pricing, that damages the UK economy, encourages scams. These scams cause Ofcom and PPP to tighten ineffective rules and regulations and so stifle innovation in the underlying bona fide market.

However, by delivering a simple call-price-check mechanism, CPL, will serve to protect the vulnerable citizen, promote competition and so drive down prices for the benefit of the consumer.

This should be Ofcom's (and the EU Commission's) overarching core strategy. Not a set of flawed micro-regulatory interventions for mobile termination/roaming rates, 070 personal numbers, 0870 numbers and 0871 numbers. These, whilst well meaning, threaten to disrupt markets and confuse consumers further. Furthermore they simultaneously reduce choice and serve to kill off grass roots competition and innovation.

Have your Say

We have already written to the CEO of Ofcom about our idea. If you feel you want to help please write to Ofcom about its intransigence in this area. You may also like to write to the Ofcom Consumer Panel which has a mandate with respect to championing consumer issues.


Flextel responses to Ofcom Consultations

Here is a simplified history of Flextel's long and sometimes very lonely battle with Ofcom, to persuade them to deliver clear, understandable, accurate and instant call price labelling. Read on...
Supporting Documentation