Ofcom’s proposed new pricing charges for business rate telephone numbers could cut into company profits. Tom Flack reports

It recently hit the news that insurers could face a multi-million pound telephone bill when Ofcom’s proposed pricing changes come into effect early next year.

Organisations that use 0845, 0844 and the higher charging 0870 and 0871 numbers can share the revenue from calls with the phone service provider. The longer customers stay on the line, the more both companies will earn. Many businesses, including banks, utility companies and government agencies use these numbers - and some generate considerable profits.

In 2004-05, for example, the DVLA made £1.3m from telephone charges. Larger insurers, meanwhile, are thought to earn in the region of £30,000 a month. Under the new legislation, this profit would turn into a charge.

Last month, the consumer organisation Which? called on companies to cease their revenue-sharing activities. “Where once businesses paid to look after customers, it now seems that customers must pay for the privilege of businesses looking after them,” says Neil Fowler, editor of Which? magazine.

Ofcom says the move is part of measures to “improve price transparency and strengthen consumer protection”. In a statement, it warned: “This is a major change for service providers and the communications providers that supply them, and both groups will need time to prepare.”

Yet despite Ofcom’s declaration two years ago (IT, 6 October 2005), and its subsequent pledge in April last year that it would overhaul the rates, research by BT Global Services has found that nearly one in three UK businesses are unaware of the 31 January deadline.

The plans will eliminate the insurers’ rebate mechanism for 0870 and 0845 numbers, which is used extensively in the insurance industry for claims notification helplines. While most brokers and insurance companies use 0800 to attract new business, many use 0870 for existing customers, pocketing up to 4p a minute in the process.

It is believed that insurers are unwilling to discuss an income stream that is perceived as a stealth expense.

“Insurers don’t want to talk about it,” said Martin Verity, business development director for telecoms provider, Callstream, “but insurers are no use without the telephone. It is critical for them that they utilise it as efficiently as possible.”

“This is a major change for service providers and the communications providers that supply them, and both groups will need time to prepare

Ofcom statement

He added that legacy issues could compound the problem. “Crucially – and what users of 0870 may not be aware of – is the legacy problem of the number range. Tens of thousands of customers will still have documentation with the old 0870 numbers on it. After the deadline, calls made to these numbers will be charged to the business receiving them.”

Although most insurers approached by Insurance Times did not wish to comment, Darren Cornish, head of customer experience at Norwich Union, accepted that it represented a source of income for the company. “There are obviously financial implications, though Norwich Union only receives a share of any 0870 revenue,” he said.

He maintained that Norwich Union would be completing the necessary changes ahead of regulation.

“In the last year we have been moving away from 0870 numbers towards 0845s and 0800s. Already, most of our key customer numbers have made this move. Our customer complaints lines are 0800, as are all our direct sales and service lines.”

The difficulty is that 0845 will come under Ofcom’s regulatory attention later next year. 0871 is to become a premium rate number under the separate auspices of the regulator ICSTIS, which says that 0871 numbers cost consumers £300m a year. The remaining option is 0844, although this offers greatly reduced rates of return for insurers.

Jacquie Morton, group project manager for the A&A, said: “We are committed to treating our customers fairly and that’s why it was imperative that we modified our operations so as to move from 0870 numbers to 0844 numbers. Not doing so could have resulted in losses of thousands of pounds per month."

Nonetheless, from a marketing and promotional perspective, insurers and brokers will have to ask if a premium rate number will attract new business in face of stiff competition from other companies and brokers using freephone numbers.

While the effect of the new regulations on insurers’ and brokers’ bottom lines is not entirely clear, circulating a business rate number to potential customers has cost implications, regardless of how it is costed or the rebate mechanism.

There could be a benefit if consumers believe that the move is an attempt for companies to act with transparency and fairness. On the other hand, in bringing the issue into a clearer focus, it could anger consumers who had no prior knowledge of the breakdown of the costs.

Ofcom Regulations and 0870 numbers

Cost of Calls (per minute)

Present Future
0870 8p 3p*
0871 6-10p to become premium rate
0844 2-5p 2-5p
0845 4p subject to regulation

*Typical fixed-line calls to geographic numbers cost around 3 pence per minute.