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How the phone companies are doing a number on customers

WITH horrific floods covering parts of the country last week, an old bugbear raised its head. The Environment Agency's flood helpline was an 0845 number, charging calls from the mobiles of panicked relatives at up to 41p a minute.

Such was the outrage that this should have happened in an emergency situation that David Cameron himself intervened. Within hours an 0345 number was introduced, which costs the same to call from a mobile as it does from a landline.

Time was that we all thought 084- numbers were for making calls to any part of the country at a local call rate, while the 087- numbers introduced later meant the same national rate from all locations.

Now many people have cottoned on to the reality, which is that these numbers often cost slightly more to call than their ­equivalents from landlines, and considerably more from a mobile.

Then there are 0800 numbers, which are free from landlines, but you pay eye-watering rates from mobiles. To take but one example, Orange users on rolling monthly contracts pay 35p per minute.

The costs of these non-geographic numbers (NGNs) might make the biggest headlines when flood helplines are in the news, but it goes way further than that. Benefits claimants needing to ring the Department for Work and Pensions helpline must call 0844, while the tax man is 0843, and NHS 24 in Scotland is 0845.

As for the private sector, most major consumer firms require customers to use 08- numbers to reach them for most calls.

The consultancy Analysys Mason crunched the numbers on this issue for telecoms watchdog Ofcom four years ago. Its report explains that four recipients get paid when we make these calls. The first is your network operator, be it a fixed-line player like Sky or BT or a mobile company like Vodafone or O2. Next are the middle men, through whose networks the call must travel to reach its destination.

This leads to the network (delightfully known as the "terminator") supplying the number to the organisation taking the calls. Both these parties take a cut - except in the case of the "free" 080- numbers, where the latter company takes no revenues and pays the terminator for the service instead.

Analysys estimated that in 2009, total revenues generated from these non-geographic numbers was about £1.9 billion. Around £908 million went to the network where the call originated; £18m went to the middle men; £504m went to the terminators; and the remaining £435m went to the organisations offering the numbers.

Analysys also pointed out that £640m of the revenues from the call originator goes to the mobile networks. This highlights the amounts they make from NGNs. This is despite the fact that call stats show that well over 80% of 084- and 087- and over 90% of 080- calls are from landlines - which indicates that most people know that calling NGNs from mobiles costs them much more.

Ofcom has never estimated what share of these figures is profit, but several sources say it is likely to be high, certainly for the phone companies. One industry source says it is likely to be comfortably north of 50%.

David Hickson of the Fair Telecoms Campaign, which has battled NGNs for years, says that working out the profit margins is complicated by the way the phone companies put their tariffs together.

"Because they bundle some calls to make them basically free, they are not accruing revenue for everything they do. So they have to make more money on some calls than others to keep them in business," he says.

The £435m that goes to the organisations offering the numbers is also worth considering. Their profit margins will be much lower, because they will need to take into account the cost of running the call centre.

Second, the money is being shared around a much bigger pool than the money going to the telecoms companies, including a whole sub-industry of companies making money from 09- premium-rate numbers.

If several hundred companies are taking substantial chunks, you don't need much arithmetic to work out that they'll be doing well to make more than £1m a year each. For a company the size of Aviva or Tesco, that's pocket change.

Hence one source, who says: "The calls make a contribution to their costs, but they would claim it's a modest one. Using non-geographic numbers is more to give customers a feeling that the call is costing them something to prevent frivolous calls."

This answers speculation that firms conspire to make money by keeping calls long by having endless automated menus and too few operators in call centres. Otherwise they would not tend to make the numbers difficult to find on their websites. If there is a conspiracy, it's probably to stop you from wanting to use the service.

But if the big winners are the mobile networks, things are about to change. From June, companies will not be allowed to charge more than a local rate call for the numbers they make available to contracted customers. This may not help someone booking a theatre ticket or hotel reservation, but it will benefit a Sky TV subscriber or someone with a complaint about a washing machine.

Financial services companies like banks and insurers have been exempted, which is potentially a major hole in the rule, but there are signs they are coming onboard anyway: TSB announced last week it was moving from 0845s to 0345s, while Barclays, RBS and HSBC are all shifting too.

Next year, mobile operators will have to make 0800 calls free to customers. They will also have to charge the same rate for connecting all 08-, 09- and 118 calls, and publish this prominently in their literature. Neither will they be allowed any longer to charge separate connection fees.

The organisations whose numbers we call will have to publish their rates prominently too, which should make it easier for people to work out total charges. No more will we read that calls from a BT landline will cost x pence and calls from other networks may vary. (It is worth noting that network operators will be allowed to offer different rates at different times of the day - an obvious complication for consumers.)

David Hickson, whose campaign partner is behind the Saynoto0870.com website, believes separating the charges from the two ends of the call chain will make it harder for organisations to justify higher rates. He sees the flood helpline change as an example of something that will happen across the public sector, and sees signs that big private firms will follow suit.

"Tesco changed to 0345 numbers three weeks ago. Waitrose and the rest of the John Lewis Partnership are going the same way. I've been pleasantly surprised so far."

But this is surely just another sign that these companies are not losing much money from doing this. The bigger question is how the telecoms industry will respond, having fought the changes and arguably managed to make them take years longer than necessary to be implemented.

Domhnall Dods, a telecoms lawyer at Towerhouse, says: "Different players will respond in different ways. Some will absorb the costs. Call centres may move elsewhere. Freephone numbers may go. You may have to do everything online."

He adds that the other possibility is that other charges to consumers will go up. Because you can be sure the overall profit margins will not be allowed to slip, this makes him sceptical about the reforms.

Hickson, who supports the changes, does not disagree about these consequences. "I accept that reality. I am not saying this will make the world a better place, but it will make it a fairer place. That's why it's worth the effort."

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