www.flextel.com

31st March, 2011OfcomRiverside House2a Southwark Bridge RoadLondonSE1 9HA

Simplifying Non-Geographic NumbersImproving consumer confidence in 03, 08, 09, 118

and other non-geographic numbers

Executive Summary

FleXtel is an ethical Network Operator, established in 1992, operating under an individuallicence from 1993-2003 and under a class licence from 2003 to date. FleXtel is directlyinterconnected with BT on a peer basis. FleXtel delivers high quality, high value flexibleterminating Number Translation Services in the 01, 02, 03, 07, and 08 ranges, tobusinesses and consumers, based in the UK, the EU and further abroad.

Ofcom’s states that “Consumer welfare is at the heart of our analysis”. It is also headlinepolicy on Ofcom’s website1.

“The Act says that Ofcom’s general duties should be to furtherthe interests of citizens and of consumers. Meeting these twoduties is at the heart of everything we do”.

I support this from a personal and ethical perspective, but also FleXtel supports thisapproach. Why? Because it is the lack of consumer protection from rapacious retail pricingthat has been harming FleXtel’s wholesale call management business and its reputation.

So does this consultation really address this important and urgent issue in an effectivemanner? Does it do all it can to put consumer protection first? Does it minimise intrusiveregulation? Does it promote competition? Does it promote investment and innovation?– I think not.

How does Ofcom’s track record with respect to intervention in this area appear to date?– Poor and mis-targeted.

Do I fear history is repeating itself with this consultation?– Yes.

Is there an overarching solution available? Yes1. Immediately force Freephone calls to be free on all UK retail networks that can

originate such calls. By imposing a retail Price cap of zero.2. Provide consumers with access to accurate, simple, convenient pricing information, at

the point of sale, i.e. just before dialling (“buying”) a call.

Is item 2 possible? Can it be done cost effectively, without inconvenience to the consumerand in an efficient manner? Would this meet Ofcom’s policy principles of competition andinnovation? Yes.

1 About Ofcom: http://www.ofcom.org.uk/about/what-is-ofcom/

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Is it being considered elsewhere? Yes in France, part deployed, from January 2011.

Why is France doing this? Because the French NRA(ARCEP) stated that it considers2:

“tariff information provided to consumers before the act of buying is afundamental principle of economic rationality and consumer protection”.

FleXtel agrees with this principle.

France’s position is also driven by the EU Unfair Commercial Practices Directive(2005/29/EC)3. Which was struck into French law in 2008. This EU law also came intoforce in the UK on 26th May 20084.

Over the last three years, I have written on a number of occasions to Ofcom, including MrEd Richards (Ofcom CEO) and separately to Directors Mr Gareth Davies and Mr DavidStewart to apprise them that pricing information was the key to stabilising the Telecommarket.

More recently in August 2008, I notified Ofcom that I felt the telecom industry wasoperating in breach of the above trading regulations. No considered response has beenforthcoming. A copy of a letter sent on 9th July 2008, is attached.

So why are telecom retailers (OCPs and their resellers) in breach of these regulations?

In particular, these regulations state that:3(3) A commercial practice is unfair if—(b) it materially distorts or is likely to materially distort the economicbehaviour of the average consumer with regard to the product.

3(4) A commercial practice is unfair if— "price or the manner in whichthe price is calculated" is a consideration "if it or its overallpresentation in any way deceives or is likely to deceive the averageconsumer" such that "it causes or is likely to cause the averageconsumer to take a transactional decision he would not have takenotherwise".

Definition: “materially distort the economic behaviour” means inrelation to an average consumer, appreciably to impair the averageconsumer’s ability to make an informed decision thereby causing himto take a transactional decision that he would not have takenotherwise;

So are retail prices generally unfair? Yes.

For a start, callers have no reasonable way to find out the cost of a call, at the point ofsale. They therefore cannot make an informed transactional decision. They also have toperform a fairly complex computation to get an accurate price. (see below).

Are some retail tariff designed to deceive? Yes, both mobile and fixed retailers use well-known techniques designed to make a call appear cheaper, than it is in practice. 2 Annex D: http://stakeholders.ofcom.org.uk/binaries/consultations/simplifying-non-geo-numbers/annexes/tariff-billing.pdf3 Unfair Commercial Practices Driective: http://ec.europa.eu/consumers/rights/

and http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32005L0029:EN:HTML4 Unfair Trading Regulations: http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/transpos_laws_uk1.pdf

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In FleXtel’s opinion, deceptive retail practices include:

1. Charging in whole minutes – A call lasting 30 seconds costs the whole minute rate.e.g. for a call lasting between 1 and 59 seconds on a BT daytime “Unlimited” WeekendPlan for UK calls tariff of 7p/minute, costs 7pence. This would be equivalent to about14p/minute, if the call was charged on per second tariff. Also a 61 second call will cost14 pence, not just over 7 pence and so on.So this method makes the call appears much cheaper. This was outlawed by Oftelunder 1984 Telecom Act powers, but has resurfaced after Oftel’s demise in 2003 andon Ofcom’s watch.

2. Call setup fees: Extensively used by BT. This has now increased sharply from 5penceto 11.5 pence, for the above daytime call plan. This makes the aforementioneddaytime call cost 11.5+7 = 18.5 pence.

3. Rounding up to the nearest penny - The 30 second call example is now costing 19pequivalent to 38 pence/minute!The simple per second cost of the 30 second call at 7p/minute without rounding andwithout call setup fees would have been 3.5pence.

All prices are inclusive of VAT at 20%. They have been taken from BT Residential tariffguide for March5 (90 pages in all). A copy of the 2 relevant pages for this simple analysisis attached.

Has the consumer been mislead? Is this tariff designed to deceive?

Smoke and mirrors? Absolutely. Even the term “Unlimited”, seems suspect, as the calllength is restricted to 1 hour and fair use policy.

Dishonest? Questionable, but because free market forces dictate that, without mandatoryaccess to accurate pricing information, then if your competitor operates these practicesand gets away with it, so must you, or die.

Good for shareholder value for any public company with a share price floating on adynamic stock market? Essential for any strong plc to implement to deliver good profits.This moral hazard needs quality targeted regulation or costly enforcement by currenttrading standards bodies.

Stop-Press: BT has just announced that it is increasing the call setup fee, for the tariffcited above, by nearly 10% from 28th April 2011, to over 12.5pence. This means the priceof the 30 seconds call in the example to 20 pence or more, equivalent to a tariff of at least40 p/min on a per second billing basis. BT, in the drive for corporate profits, is moving thecall-setup fee up month by month, in a stealthy incremental manner. Why? Because it isno longer regulated. For complex NTS condition reasons BT cannot vary the call price perminute on certain 08 number in the same way. This is an example of the “waterbedeffect”. BT needs to meet it profit targets or watch its share price drop. This is also a testof ethics, for both FleXtel and myself. FleXtel will actually make more money with this BTchange, but I find BT’s deceptive practice abhorrent. It harms consumers and thevulnerable. So I am whistle blowing, on this deceptive practice, with FleXtel’s permission.

5 BT Tariff: http://www.productsandservices.bt.com/consumer/consumerProducts/pdf/UKInternationalprices.pdf (36pages) http://www.productsandservices.bt.com/consumer/consumerProducts/pdf/SpecialisedNos.pdf (54 pages)

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Consumer Protection with Healthy Competition and Strong Innovation.

As I stated earlier FleXtel supports Ofcom in its mission for better consumer protectionand it has been a strong and vocal advocate within the UK and EU telecoms industry.

However, FleXtel also expects such protection mechanisms to be supportive of a freemarket, that both encourages competition and does not stifle innovation. FleXtel deemssuch regulation is necessary to avoid the moral hazard, exhibited by large publiccorporations (plcs), driven by the need to maximise profit and hence shareholder value, inorder to avoid a drop in share price in a real-time market. As a result any regulation, that isnot holistic will be reacted to by the “waterbed effect” and thereby will probably harmanother set of consumers, businesses, innovators or investors.

FleXtel believes that in order to deliver a vibrant Telecoms market and thereby encourageinwards investment to the UK, regulation must be accurately targeted, objectivelyjustifiable, proportionate and be minimally intrusive. The decisions, which Ofcom makes,can impose significant costs on stakeholders and also on consumers. It is important forOfcom to think very carefully before adding to the burden of regulation. One of Ofcom’skey regulatory principles is that it should have a bias against intervention. If intervention isjustified, it should aim to choose the least intrusive means of achieving its regulatoryobjectives, recognising the potential for regulation to reduce competition and therebyinnovation and inward investment. Fortunately Ofcom’s high-level policy agrees with thisposition6.

However, we shall now show, that Ofcom’s track record is not consistent with thisestablished policy. Unfortunately, this consultation also appears to ignore such high-levelOfcom policy. It is just more micro-regulation, generating regulator uncertainty. Thereappears to be too little high-level, robust analysis, essential if Ofcom is to offer sound,proportionate and holistic regulation.

Ofcom’s Track Record

This consultation, running to over 700 pages, is also an attempt by Ofcom to record thecomplex mess that has resulted from increasing desperate attempts to stop consumerharm and to protect vulnerable citizens. So far this series interventions by Ofcom, hasresulted in costly disruption of long-term business models for all stakeholders, from largecorporations down to very SMEs and little or no consumer protection benefit. Moreover,this regulatory uncertainty places long-term investment, in UK telecoms, at risk.

Unfortunately, the hard evidence of such flawed thinking, is a series of failed, butdraconian, interventions, the detail of which was glossed-over in this 700 page tome, andso brushed under Ofcom's carpet of endless verbiage. It therefore appears that Ofcom isnot learning from these bitter experiences. Examples of such mis-targeted anddisproportionate interventions include:

1) September 2007 (070 Personal Numbers) - The introduction of PCAs (pre-callannouncements) to deliver inaccurate, broad-brush and misleading pricing information.

6 Ofcom Policy : http://www.ofcom.org.uk/about/policies-and-guidelines/better-policy-making-ofcoms-approach-to-impact-assessment/

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This useless, costly, intrusive and detrimental intervention was taken out of service, as anemergency measure, after only 3 months. This emergency action was due to the PCAscausing failure of life critical automatic call equipment, leading to serious health and safetyrisks.

Ofcom had made no risk assessment prior to disrupting network operation. Ofcom ignoredwritten inputs, about an obvious system engineering risk, from highly qualifiedstakeholders.

2) August 2009 (0870) - A naive attempt to lower 0870 retail prices by forcing wholesaleprices from 6p/min to less than 1p/min. Ofcom felt that there was a “good chance” that thiswould work. No consideration was given to the moral hazard of large retailers to need tocontinue to generate high margins and profits. Unsurprisingly, 0870 retail prices remain atover 40p/min with continued detriment to the citizen/consumer, including the vulnerablemembers of society, such as the homeless.

Furthermore, Ofcom ignored also written inputs about the risk of failure of this deeplyflawed policy, including the prima facie evidence provided by Freephone 0800 services.These have a wholesale price below 0p/min and yet are still charged at over 40p/minretail, by a number of major (plc) mobile retailers.

All Ofcom policy objectives have failed to be met by this intervention. So disastrous wasthis policy that this consultation is now proposing closure of the 0870 range, on the basisthat it's own earlier intervention means that the 0870 number range now breachesOfcom's own numbering policy tariff ladder guidelines. This appears rather unjust.

However the detriment to consumers calling 0870 and those SMEs using this range hasyet to be quantified by Ofcom. No lesson has been learnt. Those businesses clinging-onto 0870, now have to pay to receive calls. Such 0870 numbers were meant to bepermanent, they are still widely published on credit cards, embedded in alarm systemsand even etched into glass e.g. car windscreens equipment. 0870 number are deployedon various material worldwide. Now 0870 consumers appear to be faced with furtherdisruption. Regulatory uncertainty is once again upon us for 0870. The 0870 market hassuffered serious damage. The consumer has not been protected. The cost has beenhuge, the consumer benefit patchy at best.

One clear beneficiary of this intervention, is well known to the industry, - BT, who gainedfrom Ofcom’s 0870 intervention. How did Ofcom become so persuaded by BT’s “Option2a”, to thereby insist against all argument in moving 0870 in conflict with Ofcom’s ownnumbering strategy group’s tariffing ladder?

Ridiculous? Absolutely. How could Ofcom really believe there was a “good chance” thiscould work, knowing the “moral hazard “ embedded with the need to maintain shareholdervalue and share price.

This unsatisfactory situation resulted from number of consumer campaigns, one of themost noteworthy being led via the www.saynoto0870.com website. The intensiveconsumer, media and political outrage at excessive mobile pricing, forced Ofcom toappear to panic and led to the intervention into the 0870 market, that was mis-targetedonto the wholesale price of 6p/min, instead of dealing with the retail mobile rapacious0870 tariffs.

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Today, numerous mobile 0870 retail tariffs remain at over 40p/min. Ofcom has the legacyof having destroyed a vibrant Market, that challenged BT's clear commercial advantage. Iam a surprised large 0870 consumer and suppliers have not sort compensation throughthe civil courts.

3) August 2009 (0871etc) - Forcing 087x (but not 0870) into premium rate and therebyconfusing the clear consumer message that only 09 numbers are premium rate.PhonepayPlus still struggle to make this, Ofcom imposed, sanction fit into its workingpractice. So regulatory uncertainty is very serious in this area and a plan to exempt 087x(except 0870) from some regulations adds to confusion. The 0871 market continues tosuffer serious damage, with little consumer benefit.

4) April 2011 (Mobile Wholesale Price controls) - Once again a hopeless policy,intended to help bringing down retail prices, instead of addressing the underlying problemof call price opacity. For evidence that this won't work and is more failed policy in themaking, see 0870 and 0800 above. This is comparable to controlling of the wholesaleprice of flour, in order to reduce the price of bread in the shops - rather silly, if you standback and view the big picture. Hopeless 0870 type “good chance [sic]” beliefs are back inplay. The vulnerable citizen will suffer with increase call prices as a result of the “waterbedeffect”.

5) EU capping of retail roaming charges - further evidence of free Market failure due tolack of call price competition. At least the EU correctly targeted retail pricing, so marketdistortion was contained.

The Consultation Proposals

The complexity of the proposals, contained within this consultation, is further evidence thatOfcom continues to attempt to "fix" a dysfunctional "free market" in the absence of asimple mechanism for consumer access to accurate call pricing.

This market is still very young, being initiated only 8 years ago, driven by mandatory EUregulatory changes, that resulted in the Communication Act 2003, the demise of Oftel andthe activation of a nascent Ofcom.

So, this consultation and, since 2003, the complexity of Ofcom's micro-regulation, issimply symptomatic of increasingly desperate measures to deal with an absence ofadequate price transparency. This makes price rapacity and tariff trickery common in themarket.

As far as the detail of the consultation is concerned, it appears to FleXtel to beunworkable, if a free market with dynamic call pricing is not to be suppressed by adraconian soviet-style bureaucracy of a planned economy.

For FleXtel’s detailed answers to the consultation questions, please refer to the input bythe Federation of Communication Services7, which FleXtel, as a full numbering groupmember, was a final draft reviewer for the authors. The detailed input is fully supported byFleXtel.

7 Federation of Communication Services: http://www.fcs.org.uk/

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Conclusion

The consumer harm cited in this consultation is real and Ofcom must deal with it as anurgent issue. However, the only solution that will protect consumers adequately, gives faircompetition and also promotes inward investment for business of all sizes is accuratepricing information.

It is surprising that an organisation as well funded as Ofcom, with a diverse and learnedworkforce, should continue to ignore this blatantly obvious source of Free Market failure. Itis common knowledge that accurate, clear and convenient pricing information is essentialfor the proper operation of any free market economy. Price transparency is the commonkey to proper market operation, fair competition and consumer protection. To quote theFrench NRA (ARCEP)…

“tariff information provided to consumers before the act of buying is afundamental principle of economic rationality and consumer protection”.

So is the UK operating its telecom market in an irrational manner? I believe so.

To protect consumers, Ofcom need only acknowledge and apply the existing fair tradelaws. Then start requiring all call origination retailers (e.g. mobile service providers, BTand their resellers) to deliver consumer access to clear accurate pricing at the time of callpurchase i.e. just before a consumer dials (buys) a call.

Those retailers, with legacy system, complaining that their retail tariffs are too complex tobe able implement the call price-line, need only to simplify their own tariffs. This may beonly an interim measure until such time that they have made an investment, in moreadvanced technology.

I have worked in this industry since 1984, both in the UK and abroad. As a result of theliberalisation of this market in 2003, with one exception, I now see no difference betweenthe sale of calls and the sale of bread. The UK telecoms market has a series of retailersand wholesalers, in a straightforward supply chain. The exception is that when buyingbread, by law, consumers can always check the accurate full price, before making apurchase.

Price labelling of calls, using a price-line service, as per France’s 3008 service, is bothfeasible and essential to protect consumers and stabilise and stimulate the UK telecomsmarket, reduce regulatory burden and restore regulatory certainty. I believe it will driveprices down, initially by exposing the deceptive tariffs described earlier and then byencouraging full call price competition.

The existence of a price-line would also deals with the intractable problem ofPhonepayPlus and mandatory premium rate price warnings. I propose any advertisedphone number that is Premium rate or not should always be accompanied with a call priceinformation message of the form:

“Call Price? Dial star, followed by the number”or if the French solution is adopted:

“Call Price? Dial 3008, followed by the number”

Thus all UK consumers would very soon become aware of the service and have noexcuse if they did not know the price of calls. Anyone, could easily spot check prices at

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any location with friends and family and thereby compare offering from different networksand different call plans. The word would soon get out which offer was cheapest andconsumer trust would be restored. Those networks with poor offerings would soon findlower sales and a high level of porting requests from other networks. The free marketwould soon begin to function properly.

Ofcom's reaction to repeated input, addressing this very issue, is to brush it aside, withoutproper written justification. This includes comments such as, "we don't agree", "it's tooexpensive" and "it has never been done before" meaning that no other regulatory authorityhas dealt with this defect. Furthermore in this consultation and historically, Ofcom hasregularly confused PCAs with Call Price Labelling (CPL) and appears to using PCA as thecost basis. This is a gross error.

So Ofcom appears to be in the embarrassing position of a head-in-the-sand ostrich, or atbest, a sheep-like follower waiting for more learned regulators, such as in France, to act.This is disappointing, as FleXtel had expected a strong, forward-thinking leader,commensurate with Ofcom’s generous levels of both funding and staffing levels. FleXtelwould have liked Ofcom to show that the UK can lead in Europe.

Is Ofcom’s stance on CPL backed by sound research? I suggest a set of freedom ofinformation requests will reveal that it is not.

It is clear that there may soon need to be a formal inquiry into why Ofcom continuesto ignore EU and UK Unfair Trading regulations and fails to act to ensure itsindustry both complies with them and falls into line with other free markets.

Ofcom seems to be failing to handle its delegated powers under the CompetitionAct in a manner that is compatible with a free market philosophy. This may requirea detailed parliamentary investigation and a review of whether the delegation ofsuch powers is working in the consumer’s interest.

_________________________

William R Goodall BSc, CEng, FIET For and on behalf of FleXtel Ltd

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FleXtel’s Credentials

FleXtel is an ethical Network Operator, established in 1992, operating under an individuallicence from 1993-2003 and under a class licence from 2003 to date. FleXtel is directlyinterconnected with BT on a peer basis. FleXtel delivers high quality, high value flexibleterminating Number Translation Services in the 01, 02, 03, 07, and 08 ranges, tobusinesses and consumers, based in the UK, the EU and further abroad.

William Goodall founded and funded FleXtel. FleXtel has zero debt. Previously Williamwas a member of the original Vodafone team of 10 (1983-1989) as Head of Telecoms andwas responsible for the design and deployment of the national fixed switching network thatunderpinned the Vodafone radio sub-system. He was also involved in the interconnectnegotiations with BT and a Cable and Wireless subsidiary (Mercury).

From 1990 onwards, he has worked as an independent consultant, advising clients atBoard level about numbering, tariffing, interconnect, revenue assurance and regulatorystrategy. Clients being based in Europe, the former Soviet Union, the Far and Middle Eastand the USA.

_________________________

http://www.flextel.co.uk

9 July, 2008

Mr E RichardsChief Executive OfficerOfcomRiverside House2a Southwark Bridge RoadLondonSE1 9HA

Dear Mr Richards,Re: 070, 0870 and 0871 Changes

A safe way forward?

1 Status of Ofcom’s Consumer Protection InterventionsI wrote to you in September 2007, regarding 070 and my concerns that Ofcom’s 070 interventioncreated a health and safety risk. I would like to thank you for passing my letter on to DavidStewart, whose team made a thorough investigation, using Ofcom’s formal powers, andconfirmed that the imposition of pre-call announcements (PCAs) on 070 services did, indeed,create such a risk. Ofcom subsequently decided to withdraw the requirement for thesedangerous PCAs. A decision to be commended for its wisdom and reflecting the analyticalapproach that Ofcom adopted, in this specific case. For details see:

http://www.ofcom.org.uk/consult/condocs/numbering03/070precall/

1.1 070 ReviewI am encouraged that Ofcom has decided to make a full and thorough review of 070. I alsorecognise that, unless FleXtel and other PN providers make an extra effort to help provide asolid database of bona fide applications, it will not be possible for Ofcom to make a balancedjudgement in this matter. I therefore have instructed my team, at FleXtel, to support this work,proactively. To this end, FleXtel has asked all 070 end users in its customer base (built-up overthe past 15 years) to assist by answering questions by Ofcom and to fill out Ofcom’s onlineinquiry form. I am impressed with the professionalism with which this investigation is beingconducted and am confident that the outcome will be that Ofcom will better understand what thispowerful service is achieving for the UK economy. It should therefore be in a position to separatethe important issues of protecting consumers from scams from those of inadvertently destroyinginnovation. For details see:

http://www.ofcom.org.uk/consult/condocs/numbering03/070precall/review/

1.2 0870 ChangesBased on the outcome of the 070 team’s investigation, the 0870 team, led by Gareth Davies,rightly determined that the use of PCAs, as consumer protection mechanism, is not sustainable.Consequently, in November last year, Ofcom withdrew the requirement for PCAs in its letter fromMr Davies. For details see:

http://www.ofcom.org.uk/consult/condocs/numbering03/letternts.pdf

In his letter, Mr Davies stated:“Ofcom will not make the changes until a satisfactory solution can be found. We arealready assessing the extent of the problem and identifying potential solutions. Asyou would expect, we will include consumers, consumer organisations and industrythrough full public consultation”.

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He also stated:“While it is very disappointing to us that a delay is necessary, I am sure you willagree that Ofcom’s duty in such circumstances is to ensure that this risk isaddressed before proceeding further. The overall objective of Ofcom’s approachremains unchanged: to increase consumer protection for calls to 0870 numbers”.

However, the promised consultation “0870 Changes”, which closed last month, supplied no suchsolution to the consumer protection problem. For this reason, I was surprised at the ConsumerPanel’s support of this proposal in its press release. See:

http://www.ofcomconsumerpanel.org.uk/news/020508.htm

Indeed, with the loss of the primary consumer protection mechanism of PCAs, there is now noeffective protection of consumers offered this intervention. What the Consumer panel may havemissed is that mobile and fixed providers (OCP) would still be free to charge what they like for0870, provided they publish the fact, e.g. on a website. Indeed the proposed removal of the NTScondition, means that BT would also be free to charge consumers what they like, increasingrather than reducing confusion for consumers, over the real cost of calling 0870.

1.2.1 Responses to 0870 Changes• BT warns that if it is to comply with the spirit of Ofcom’s proposed option B, with all other

factors remaining equal, then BT would have no choice but to increase the cost of calls to 01& 02 numbers. I agree with BT’s logic and FleXtel’s economic model supports this prognosis.However, from a broader business perspective, it would make more sense for BT to ignoreOfcom’s now weak plea for geographic rates and use its newfound freedom to charge 0870at a higher rate. This I believe will be the likely medium term outcome and a significant riskfor consumer protection.

• C&W’s erudite input, supports this position by demonstrating mathematically how thisintervention strongly favours BT and states:

“As the dominant operator in call origination BT would have both the ability andincentive to become dominant in 0870 termination”.

I agree with C&W’s analysis, in that Ofcom’s intervention now delivers a windfall opportunityfor BT. In broad terms, BT has lobbied Ofcom, for this enhanced business position, since the7th January 2005, in its input to Ofcom’s “NTS Options for the Future” consultation.Furthermore, Ian Livingston, as former head of BT Retail, has publicly supported this stance.So, Ofcom’s intervention now makes very good business sense for BT, but does nothing forthe consumer. See:

http://www.ofcom.org.uk/consult/condocs/ntsoptions/Responses/http://business.scotsman.com/business/BT-calls-on-Ofcom-to.2642029.jp

• Consumer groups state that they do not see a consumer protection mechanism. Indeed MrJulian Shersby, a longstanding supporter of the saynoto0870 campaign states:

“The only requirement now proposed by Ofcom for telecoms companies, stillwanting to rip off telecoms consumers with these unjustified higher call charges,is that the consumer must be able to look them up on some obscure web pageor in the small print of some leaflet, available on request from their telecomscompany”.

I find myself in the strange position of agreeing fully with this part of his submission, as MrShersby is clearly, “right-on-the-money”.

• The FCS Numbering Group, for all the above and other reasons, calls for a full review ofthe proposals:

“In the light of this significant recent change, we do not believe that Ofcomshould proceed with the current proposals but should engage with allstakeholders and in particular with industry experts to carry out a more wideranging consultation aimed at addressing the issue in a comprehensive way.Taking into account not only the problems associated with pre-call

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announcements but also the CAT judgement and the introduction of the 03range which provides a geographic rate alternative”.I agree with the FCS NG, its arguments are carefully thought through and well founded.

In summary, these responses highlight that, having lost PCAs, because they are unsafe, Ofcomhas also lost its primary consumer protection mechanism. This means that the 0870 interventionis no longer objectively justifiable and clearly fails the cost-benefit tests incumbent on Ofcom i.e.

• Benefit – None (in fact it has make matters worse for BT customers)• Costs and detriment remain:

ü To industry, innovation and SME TCP’s; andü To the UK economy; andü EU and international cross-border trade; andü On 0870 consumers of call termination (number changes).

I have great difficulty in understanding how Ofcom could consider it reasonable to put theseproposals on the table, since I and other consumers of 0870 see no benefit, whatsoever. Sincethe only beneficiary seems to be BT, whilst causing real harm and increased confusion toconsumers, it seems Ofcom is now sailing into very dangerous waters indeed. Did Ofcomactually perform a revised cost-benefit analysis before recommending its option B? For detailssee:

http://www.ofcom.org.uk/consult/condocs/0870calls/responses/

1.3 087 (except 0870) Premium Rate Services RegulationThe responses to this consultation also serve to highlight that this planned intervention is alsomired in multifaceted problems, similar to those facing 0870. It also fails to retrofit effective andenforceable consumer protection to a vibrant call termination market, of significant importance tothe UK economy. In fact, this tactical, media-driven, intervention, like 0870, makes a shamblesof Ofcom’s numbering strategy. It will therefore cause consumer detriment by increasingconfusion, since premium rate can no longer be relied upon to be “those numbers beginning 09”,but will also include 087x, but exclude 0870. Surely, this is becoming farcical?

Admittedly, PPP (formerly ICSTIS) have done their best to comply with Ofcom’s request anddeliver enforceable detailed regulations, but this has not been a success. Now that we can seeunintended consequences of Ofcom’s blue-skies policy, is it really a sustainable and objectivelyjustifiable intervention? For details see:

http://www.ofcom.org.uk/consult/condocs/087prs/responses/

2 Consumer ProtectionI strongly support Ofcom its policy of consumer protection. It is also in the commercial interest ofFleXtel and other bona fide and ethical telecom providers, to stop scammers bringing telecommarkets into disrepute. I also concur with Ofcom’s published view that consumer empowermentis a critical factor for the proper operation of the market. Indeed, I was encouraged to see thatOfcom’s recent Annual Plan has moved consumer empowerment up its agenda and nowassigned this matter “top priority”. Indeed, it is worth quoting from page 18 of the latest plan.

“The fast pace of change and increasing diversity of services mean thatconsumers’ needs for empowerment and protection are changing. Intelecommunications, the number of new offers is growing continuously andservice propositions are often more complex. In this environment we need toensure that consumers are able to make well-informed choices and move easilybetween services”.

I could not agree more, in my opinion, this should be at the core of Ofcom’s strategic thinking. Itneeds to work on this area, as a matter of urgency, in order to steer itself away from theregulatory and enforcement resources “black hole” into which it is being drawn. For details see:

http://www.ofcom.org.uk/about/accoun/reports_plans/annual_plan0809/projects/

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2.1 The General Condition 14 Enforcement ExperienceIt is clear that none of the above noted interventions have offered safe and cost-effectiveconsumer protection. This is partly due to the current onerous policing and enforcementoverheads, for which Ofcom and PPP clearly do not have adequate resources. This view isunderpinned by the failure of Ofcom’s GC14 initiative made in August 2006. This policy, althoughwell meaning, has been shown not to be enforceable. It must be obvious that Ofcom cannotresource the policing of every OCP. These can vary in scale from major multinationalcorporations e.g. Vodafone/BT, down to a vast host of “one-man-bands”, some of which simplyresell services, but may also set their own retail tariff. This task is gargantuan and Ofcom shouldadmit it is beyond its capacity and, even if adequately resourced, will not be cost effective. Sincethe consumer funds Ofcom, indirectly via higher Telecom service costs, can this bureaucraticand ineffective approach be of benefit to them or to the UK economy?

Furthermore, even a bona fide provider, such as BT, presents consumers wishing to know thecost of calls 087x with the need to read and understand a 32-page tariff guide, plus a 56-pagesupplement. See:

http://www.productsandservices.bt.com/consumerProducts/displayTopic.do?topicId=15718http://www.productsandservices.bt.com/consumer/consumerProducts/pdf/UKInternationalprices.pdfhttp://www.productsandservices.bt.com/consumer/consumerProducts/pdf/SpecialisedNos.pdf

Although an heroic effort by BT to comply with GC14, does anyone really believe that thesetomes empower the consumer to make an informed choice?

2.2 Price CapsIt is clear that the EU commission admits that the competitive market in call origination has failedby its recent well-publicised retail price cap on mobile roaming charges. It is also clear thatOfcom also accepts that competition is failing, by its imposition of wholesale price caps onmobile termination. However, it is less clear that Ofcom has recognised that either it must fix thismarket failure or it must impose retail price capping, as per the EU commission.

Of course, price capping is a very slippery political slope, with significant and well-documentedunintended consequences. The EU, driven by its politically popular success of a high level cap,necessary to take the heat out of rapacious mobile pricing for roaming, is now consideringfurther action to reduce mobile termination rates at the national level.

2.3 Calling Party Pays RuleHowever, the EU pushing mobile termination prices to a point to beyond which the “calling-party-pays”(CPP) rule is breached is not sensible. The success of the GSM CPP model versus theUSA model of “mobile-party-pays”(MPP) is well understood. GSM’s adoption of the CPP modelwas the direct outcome of a strenuous debate between the advocates of the Nordic and the UKCPP business models and the French MPP model, as adopted for Radiocom 2000. It is worthobserving that Radiocom 2000 was never a major success and closed in 2000. Similarly, theSwedish analogue system, operated by Comvik AB, also used the MPP model and closed in theearly 1990’s. Typically, MPP mobile consumers do not publish their mobile numbers to savepaying for unwanted callers, making the service less attractive than fixed for call termination. Incontrast, CPP mobile consumers broadcast their mobile numbers widely, which leads to thestrong substitution trend of mobile over the fixed line services, seen across Europe.

For historians the failure of the MPP model should not be surprising, since the principle of“message-sender-pays” has been long established, as a sound business practice. Infact, a directresult of the failure of a “receiver-pays” policy in the British postal system, led to the invention ofthe postage stamp (Penny Black 1840).

It is worth commenting here that Ofcom attempted to breach the CPP rule and change the 0870business model to “receiver-pays” by a stealth retail price cap embedded in its original 0870intervention proposal (now lost in the latest concept). This was rather foolhardy and played intoBT’s hands.

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3 Consumer Empowerment – The Generic Way Forward– for all call services, including 01, 02, 03, 07, 08 and 09 etc.

On the 26th May, 2008 the Consumer Protection from Unfair Trading Regulations 2008 cameinto force. These wide ranging Regulations apply to all business sectors. They support pricinginformation, as an important aspect of consumer protection. The regulations state (in terms ofthe definition of misleading actions) that:

“price or the manner in which the price is calculated" is a consideration "if it or itsoverall presentation in any way deceives or is likely to deceive the averageconsumer" such that "it causes or is likely to cause the average consumer totake 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 beingbreached and costs being incurred. In any case, many call types are outside such bundles e.g.other 08xx services, including Freephone (0800) calls. So deciding to place a call will depend onits price, which should be available, in a simple and clear format, before a consumer decides toagree to pay for it (i.e. to make a transactional decision and place a call). Schedule 2 of theseregulations makes amendments to various acts, including the Telecommunications Act 1984,sections of which were not repealed by the Communications Act 2003 and are therefore still inforce. In particular, the “Control of Misleading Advertisements Regulations 1988” are replaced bythe new regulations. For details see:

http://www.berr.gov.uk/consumers/buying-selling/ucp/index.htmlhttp://www.opsi.gov.uk/si/si2008/draft/ukdsi_9780110811574_en_6#sch2

I believe this new legal framework now presents Ofcom with a one-off opportunity to at lastsolve the “Consumer Protection Problem”, in a manner, that:

• is consistent with Ofcom’s policy objectives;• is cost effective, proportionate and objectively justifiable;• is none-discriminatory;• will promote effective price competition and• will reduce the need for either retail and wholesale price controls,

which are symptomatic of ineffective price competition.

I strongly suggest that Ofcom make use of these new regulations to impose the introduction ofCall Price Labelling (CPL). This is the process where any consumer can check the price of anycall, at the point of sale. This is done by dialling an industry-wide agreed prefix (e.g. 104, * or #)followed by the number to be checked. This price-check call is a free call. If the price of the callis acceptable, the consumer then redials to place the call in the normal manner. This is a safeoperation and does not carry the risks associated with PCAs.

Some Originating Carrier Providers (OCPs) may wish to offer an enhanced service, whereby thecaller simply holds for connection. However, this must not be imposed on industry, in the firstinstance, due to the negative impact on legacy systems (BT et al).

Ofcom should by now be aware that the introduction of CPL is essential, if the UK and EUTelecom markets are to be stabilised by the resulting consumer empowerment. The only otheralternative is retail price capping, with all the associated risks of market distortion. However, forCPL to be viable, Ofcom and the established OCPs must accept, that current retail tariffs (bothdirect and via resellers) may need to be simplified to accommodate such a requirement. Theargument that CPL is simply too expensive to deploy, has always assumed that such tariffstructures are sacrosanct. This is quite simply the “cart before the horse”.

Over the twenty years that have elapsed since opening up the market to competition, no one hasseriously asked... Can we deliver CPL yet? The answer is of course we can. Today, there isprobably more computing power in a mobile phone, than in BT's billing system in 1984. Intoday's computer driven world CPL is not only feasible, but verging on the trivial. It all depends

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on the technical approach and, crucially, choosing compatible tariff structures and compatiblereseller incentive schemes.

With hindsight, the UK could have introduced CPL soon after 1984. In this case, would the trickytariffs, punitive 08xx pricing and random reseller deals have ever become established? It issimply unacceptable to state it can't be done because of established practice. I say to Ofcom,introduce CPL and simplified tariffs will follow. Tariffs that consumers may actually be able tounderstand.

I therefore call upon Ofcom to make a high level decision to cease all this unenforceable micro-regulatory nonsense and thereby restore regulatory certainty to the affected markets. Instead, Isuggest Ofcom set up a wide-ranging study into how industry can ensure compliance with theConsumer Protection from Unfair Trading Regulations 2008 and a perform a quality cost-benefitstudy of the CPL concept. I would be happy to participate in such a study. For details see:

http://www.flextel.co.uk/ofcom/

Yours sincerely,

William R Goodall BSc, CEng, FIETChairman - For and on behalf of FleXtel Ltd

Copies:OFCOM Consumer PanelBERRFCS