Ofcom is proposing to modify one of the documents that we publish in order to fulfil our duties in relation to telephone numbering under Part 2 of the Communications Act 2003 ('the Act').
No substantial changes to policy or administrative processes are suggested and the proposals only directly relate to how the maximum retail prices of certain non-geographic numbers are presented in the National Telephone Numbering Plan (the Plan) .
Proposed Modifications to the Plan
The Plan currently states the maximum prices for calls from BT lines to numbers beginning with 0843/4, 0871/2/3 and 09 of 5ppm, 10ppm and 150ppm respectively. These maximum prices are inclusive of Value Added Tax ('VAT'). This regulation has been in place for more than a decade as a consumer protection measure designed to inform customers of BT of the most they can expect to pay for these calls.
From March 1991 VAT rates remained constant at 17.5% for more than 17 years and this did not raise any issues. More recently VAT has been subject to 3 variations by the Government in reaction to the economic crisis. Firstly, in November 2008, VAT was reduced to 15% as a move to stimulate consumer spending. This was followed, in December 2009, by an increase back to 17.5% and in June of this year the Chancellor of the Exchequer announced a further increase to 20% from 4 January 2011.
These changes challenge the basis of setting maximum prices that are inclusive of VAT. The impact on consumers and providers under the current caps is not symmetric. When VAT is reduced, consumer prices reduce while provider revenue stays the same. On the other hand, when VAT increases, some consumer prices (for BT customers) stay the same while provider revenue falls. As non-BT communications providers are not directly regulated by their price ceilings they have the option to increase prices as VAT increases. We consider that this asymmetry exposes problems with VAT inclusive price caps.
In recognising this we consider it is appropriate to make interim changes to the Plan to avoid the unintended impact of the VAT changes. We propose to modify the Plan to give the maximum price for each number range that is exclusive rather than inclusive of VAT.
The revised price caps will be set in such a way as to ensure that prices consumers face will not increase by any more than the 2.5% increase in VAT. The changes in the price ceilings are from 5p to 4.26p, 10p to 8.51p and 150p to 127.66p respectively. .
We recognise that these changes to the way in which the maximum prices are represented will mean that consumers no longer have the clarity of a figure giving the total cost of the call. While this is regrettable, recent evidence suggests that these limits are, in any case, not well known or understood by consumers. We propose to address this issue as part of our broader review of Non-Geographic Call Services ('NGCS') on which we will be consulting later this year, although any formal changes to the Plan are unlikely before mid 2011.
The reasons for the proposed modifications are explained in the body of this document and the specific text that we propose to modify in the Plan is set out in Annex 6. Certain statutory procedures apply when we propose modifications to the Plan and this consultation follows those procedures. We do not propose to make any changes to the numbering condition or the numbering application forms.
We are seeking responses to the specific consultation questions set out in the document and general comments on our proposals by 5pm on 17 November 2010.
Proposed modification to the PRS Condition
In making this change to the Plan we are also increasing the price of calls to 0843/4 numbers, inclusive of VAT, above the threshold where they become subject to premium rate regulation through the Premium Rate Services ("PRS") Condition.
We are not currently aware of any need for any additional regulation of these services and do not consider that the application of a consumption tax increase should have this effect. We are, thus, additionally proposing to modify the PRS Condition to specifically exclude calls to 0843 and 0844 numbers.
Our proposal is detailed in Section 4 and the Notification of the modification is at Annex 7.