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'03' numbers being introduced in March 2007

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  • DonnyDave
    DonnyDave Posts: 1,579 Forumite
    Thanks for your informative post bunking_off. There is a similar discussion going on over on Saynoto0870 here.

    It's interesting to note that geographical calls and NTS have opposing forces setting their prices. By letting market forces decide the terminating payments, how can there be a level playing field with regards originating geographical calls vs NTS calls? :confused:
  • Interesting to see when my words make it elsewhere!

    The reality is that if all originating operators pay largely the same termination rates for 03, then in isolation there'd be little competition through market forces (bit like 0870 today). However, the competition comes about via the pricing being locked to geo pricing, which is competitive.

    Obviously on the termination side the competition bit will come about by which operator can offer the best mix of service for least payment from the 03 number holder.

    Termination rates are fundamentally not driven by market forces. I'm not an economist, but I understand they'd refer to these as a "negative externality" (ask Martin for a proper explanation!).

    It's easiest to illustrate by looking at mobile termination rates (the amount that mobile network operators charge other operators to terminate calls to their network). Left to their own devices, the mobile operators would charge an excessive amount for termination. Why? Because when you choose a mobile provider you do it in your own self interest, and the amount other people will pay to call you from a landline isn't a huge driver (this isn't a criticisim, it's just human nature!). Logically, if they set the termination rates higher then they could cross-subsidise their outgoing call charges (which is a very competitive market), and also it'd encourage you to combine with your mates and get them to all use the same mobile operator to avoid the termination rates (economists would deem this leveraging power in a monopoly market - call termination - to gain advantage in another competitive one - call origination). This is a classic unavoidable network failure so the regulator has to intervene and set the termination rates.

    A similar situation exists with termination rates to BT geo numbers. If they weren't regulated, then BT could set them high, and disadvantage customers of other operators in favour of their own. So, BT geo termination rates are regulated. Now, Ofcom take the view that even if you're with another provider such as Virgin Media, then they have a monopoly on termination to your line (e.g. BT can't bypass them for calls to you), so strictly these should be regulated as well. That would get too complex given the number of operators in the UK, so the way things work is that there's something called "reciprocity arrangements", whereby other operators are expected to charge BT as BT charge them...which propagates throughout the industry.

    So, the posters on the other thread are correct that termination rates are driven by Ofcom rather than market forces, but this is for good reason and is inherent in the nature of how networks operate...it's really a case of Ofcom doing what they're charged with doing, which is to act as a proxy for the market in situations where it inherently fails.
    I really must stop loafing and get back to work...
  • DonnyDave
    DonnyDave Posts: 1,579 Forumite
    So going back to how calls are routed, you said that with NTS it is a near end handover, ie it is passed to the terminating provider as early as possible. So what happens to a call to a NTS number that translates to a geographical on the caller's network?

    Typically a call from a BT landline to, say a C&W 0870 number that translates to a BT 01/02 number. Does the call go to C&W's network, then it looks up the 01/02 number and carries it close as possible on C&W's network to the location of the 01/02 number (ie far end handover)?

    Or does it work in another way?
  • Paul_Varjak
    Paul_Varjak Posts: 4,627 Forumite
    Part of the Furniture 1,000 Posts Photogenic Combo Breaker
    Good gracious bunking_off, you have my head spinning!
  • Good gracious bunking_off, you have my head spinning!

    My work is done... ;-)
    I really must stop loafing and get back to work...
  • DonnyDave wrote:
    So going back to how calls are routed, you said that with NTS it is a near end handover, ie it is passed to the terminating provider as early as possible. So what happens to a call to a NTS number that translates to a geographical on the caller's network?

    Typically a call from a BT landline to, say a C&W 0870 number that translates to a BT 01/02 number. Does the call go to C&W's network, then it looks up the 01/02 number and carries it close as possible on C&W's network to the location of the 01/02 number (ie far end handover)?

    Or does it work in another way?

    Pretty much so, yes. C&W have a big network so will typically have connections into most of BT's local exchanges (DLEs). The call to the 0870 number will be routed by BT directly from the originating DLE through to C&W. Under the existing regime C&W would received !!08 retail pricing} minus {regulated origination charge}. Under the new regime, C&W will receive rates as outlined in my earlier posts, but it'll be considerably less.

    C&W would then translate the number to a geo delivery number, probably involving time of day, origin of call, dynamic info about availability in call centres etc. Let's say the delivery number is a BT geo number. C&W would then route the call across their network and far end handover the call back to BT (probably once again directly to the terminating DLE). They'd pay BT geo termination, probably LES rate.

    In all of the above I use C&W as that's the example you gave...could equally be Thus, Virgin or any of the big providers. However, the reality is that for these type of companies, the terminating line will probably not be back on BT, but hosted on their own network. Smaller companies would be similar to the above, but chances are collection/delivery will probably be via BT's tandem layer, and the terminating line will almost certainly be back on BT.
    I really must stop loafing and get back to work...
  • bbb_uk
    bbb_uk Posts: 2,108 Forumite
    Thanks bunking_off.

    It seems there's a lot more that goes on "behind the scenes" than appears.

    BT have a distinct advantage in that if they are the OCP and TCP for calls to the underlying geographical number for 03x numbers then they can set their rates low in most cases. However, I doubt they will do this as BT aren't known for their cheap services.

    Communication Provider, Call08.com, currently charge £4.95 per month for upto 500min of inclusive minutes to freephone 08x numbers and only charge 2p/min for incoming calls after the 500mins have been used.

    I assume a similar thing that happens with 080x numbers would happen with 03x so that could possibly mean that Call08.com could do a similar tariff (if not slightly cheaper) for their 03x numbers if they decide to market them because at least they would be receiving the same, if not slightly more, money from CP/TCPs involved in carrying the call to one of their 083x numbers than their 080x numbers.

    I have a feeling that some CP will probably charge a lot for incoming call charges to one of their 03x range of numbers in a hope to deter their customers from migrating from an existing 084x/087x number.
  • DonnyDave
    DonnyDave Posts: 1,579 Forumite
    Thanks for your explanation of the network bunking_off. I've just read about what single tandem, double tandem is here.
    For these 03 numbers [...] the million dollar question (well in reality the market's worth tens of millions of pounds per year) is whether the termination rates for 03 will be similar to ST or DT. If the rates are similar to DT, there's scope to deliver the call without requiring a contribution from the 03 number holder. If it's more like ST, then chances are they'll have to pay.
    Can we think of ST and DT rates as a sort of 'short distance' rate and 'longer distance' rate, respectively? Is this what you mean by this? Presumably those telcos who pay ST rates have more interconnections between networks?
    In all of the above I use C&W as that's the example you gave...could equally be Thus, Virgin or any of the big providers. However, the reality is that for these type of companies, the terminating line will probably not be back on BT, but hosted on their own network. Smaller companies would be similar to the above, but chances are collection/delivery will probably be via BT's tandem layer, and the terminating line will almost certainly be back on BT.
    So really a telco would prefer to keep a call on its own network. A call that has to be handed over, whether it be from a landline to a landline or landline to NTS number to another telco's subscriber will cost it more, or to look at it another way, there will be less profit in it.

    How do charges work for freephone numbers? I suppose that 03 will be inbetween freephone and 0845.
  • DonnyDave wrote:
    Can we think of ST and DT rates as a sort of 'short distance' rate and 'longer distance' rate, respectively? Is this what you mean by this? Presumably those telcos who pay ST rates have more interconnections between networks?

    Sort of, yes, but it's not quite that simple. Certainly to achieve universal ST coverage you need to get to more of the country. However, the connectivity in e.g. London is very complex so you could pay DT for a call that's only being carried 5 or 10 miles. It's not about distance, it's about number of elements used in BT's network. You are correct that telcos who pay ST have greater connectivity...the nirvana is actually 100% LES, but to do that involves 700 connections into BT and for more rural areas that isn't economic for most.
    DonnyDave wrote:
    So really a telco would prefer to keep a call on its own network. A call that has to be handed over, whether it be from a landline to a landline or landline to NTS number to another telco's subscriber will cost it more, or to look at it another way, there will be less profit in it..

    Sort of. But remember that BT's termination rates are regulated to cost + reasonable return, so the gamble is whether the cost to build to a customer is justified for the savings versus payments to BT.
    DonnyDave wrote:
    How do charges work for freephone numbers?

    Exactly the same way as 0870/0845 does today. BT collects the retail revenue, and subtracts its origination costs. For 0870 that'll be the 8ppm (or whatever) minus the origination fee. For 0800, that's zero minus the origination fee, ie BT gives a negative amount to the terminating telco, ie the terminating telco gives money to BT. Only difference is that on 0870 etc there's a factor for BT's discount schemes, whereas obviously you can't discount below 0ppm so that's not there for 0800.
    I really must stop loafing and get back to work...
  • DonnyDave
    DonnyDave Posts: 1,579 Forumite
    I quote from the thread on the 0870 petition to the PM here:
    - OCPs (typically this is taken to mean Originating Communications Provider, incidentally) have no great incentive to move trade onto 08 numbers. As the accounting regime works at the moment - and following the changes to 0870 it is under renegotiation - an OCP makes a higher margin on a geographic call than non-geo such as 08. The reason for this is that on geo call the terminating network charges on a regulated "cost plus" basis and the OCP retains the retail revenue minus this, whereas on a non-geo number the OCP can only retain on a "cost plus" basis, and the terminating network receives "retail minus"...it's this arrangement which facilitates any revenue share deals between the terminating network and the 08 number holder. To put some real numbers on it, depending on the connectivity between BT and the 0870 terminating network, BT's retention on a call to an 0870 number is <0.5ppm peak.
    With 0845/0870 we know that BT is generally accepted as being the cheapest provider to call these numbers from. Other providers who do offer cheaper call prices than BT are assumed to be a bit of a lost leader.

    My understanding of this has come from reading the consultations. For 0870, BT originates at it's 'standard', non-discounted national rate and passes all but the amount it costs it to originate the call.

    Other originating telcos pay the terminating ones the same amount as BT does. It costs other telcos more to originate the calls, so they end up either making less profit and/or charging more than BT. Is this right?

    I know Virgin Media charge 0845 and 0870 at 5 and 10p/min respectively for daytime rates. Full NGN rates for VM here. :eek:

    Is this VM being greedy, or is this an example of how the way the system works stiffles competition by allowing BT to be the cheapest?

    This brings us round to 03. Will it work in a similar way or can Ofcom simply set the termination charge to be the same as geographicals so as to leave more room for profit at the originating end rather then the terminating CP.
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