2 The nature and range of the reference services

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					            2 The nature and range of the reference

                      2.1. Chatline> and? Message services were defined by the DOT in his terms of
                    reference for/ this*inquiry (see Appendix 1.1). They are all premium rate services
                    (PRS> costing, more than ordinary local or trunk calls. BT bills the caller and
                    collects revenue as with ordinary calls but then passes on part of this revenue to
                    the service provider (SP). The SP provides the information and operates the
                    recordings-for message services or operates the chatline or other service. BT also
                    offers1 a 'managed service' in which the SP provides the recorded messages which
                    are then placed on BT machines. PRS are provided in the BT network through
                    the 'Derived Services Network'. A technical description of how services work
                    fe given at paragraphs 2.19 to 2.25.

Chatline services      2,2. Chatline services enable a caller to be connected to a number of other
                    callers for a group conversation. The identity of other callers is not known in
                    advance, which distinguishes the service from a 'conference' service which
                    allows group discussion on several lines specified in advance (a service normally
                    used for business purposes). Indeed anonymity is usually a condition of
                    participation on chatlines, with callers only allowed to give their first names (the
                    conditions for those using some chatlines are described in detail below at
                    paragraph 2.69). It is doubtless also part of the attraction of the service for many
                    callers. The SPs who operate chatline services limit the number of callers in any
                    particular group conversation, usually to no more than ten. Their equipment
                    allows them to monitor the conversations, speak to the group or to individual
                    callers and to cut off callers. The monitors of some SPs take an active role in
                    the group conversation when it seems necessary to stimulate conversation. There
                    are both national and local chatlines. (In the former group participants can come
                    from anywhere within the United Kingdom. In the latter callers come from a
                    particular locality.) The first and most successful chatlines were BT's own
                    'Talkabout' services. These have now been discontinued (see paragraph 2.10).

                       2.3. Message services cover a wide range of services. They exclude, for the
                    purposes of this reference, services where the message is provided 'free', ie for
                    no more than the ordinary cost of the call (some of these services are described
                    briefly at paragraph 2.35) and are confined to those services where the call rate
                    is higher than standard rates.

                      2.4. The services normally involve recorded messages. These cover a very
                    wide range of subject matter from information such as share prices, weather
                    forecasts and sports results, through news items about sports or other subjects,
                    to entertainments such as music, jokes or stories. Other examples include medical
                    information, horoscopes, and interviews with popular figures from the
                    entertainment world. There are also dating services where callers can listen to
                    information about other callers and arrange dates; services which give live
                    commentaries on sports events; and 'voting' services where television viewers or
                    newspaper readers can call to register a vote, for example on topical issues or
                    for contestants in talent shows. There are also 'interactive' services, involving
                    more sophisticated equipment, where the caller can choose different messages
                    using either Touchtone signalling or voice. Examples are share information
services and interactive 'adventure' games. The range of message services has
grown quickly and there is obviously potential for any new type of message
service that can be identified by SPs as likely to generate enough calls to be
commercially viable. Message services which have attracted a lot of business and
a number of complaints are in the 'adult entertainment' category.

   2.5. 'One-on-one' services involve live conversation between the SP and the
caller, again with the condition, for the purposes of this reference, that the caller
is paying a premium call rate. Business and shopping information are examples
of services using the one-on-one approach.

  2.6. The original chatline service, Talkabout, prompted the complaints which
led to the DGT's reference. It also served as a model for the chatlines currently
provided by independent SPs.

  2.7. Talkabout was a 24-hour chatline service operated by BT, with one
service aimed at adults, the other at teenagers. It was originally launched in April
1983 and was suspended in February 1988. The services operated on 0055
numbers, and were based on regions. The cost of the services to callers was at
the 'a' rate (see paragraph 2.56), so that on average calls cost just over 5 pence
per minute. During 1987 the service received about 40 million calls and
generated gross revenue of about £5 million. 55 per cent of all calls were made
to Teenage Talkabout but the adult service generated 55 per cent of revenue. The
average call durations of the two services were 3!/2 minutes for Teenage
Talkabout (at a cost of 19 pence) and 6 minutes for the adult line (costing 32-5

  2.8. There were a number of conditions and controls on the Talkabout service
(many of which have been adopted by current chatline operators). Callers were
not allowed to exchange phone numbers, or surnames and addresses. There was
a ban on unruly behaviour, unacceptable language or anti-social topics of
conversation. Callers breaking these rules were warned and, if necessary, cut off
by monitors. When callers got through to the service, they heard an introductory
message about cost and monitors interrupted callers every 15 minutes with a
reminder of the cost of calls. On the teenage line there was an automatic cut-off
after ten minutes.

  2.9. Talkabout first came under OFTEL scrutiny in 1986, following
complaints about high telephone bills and media attention, particularly linked to
teenage use of the service. There were also allegations that Talkabout
conversations had become obscene, racist or threatening and that teenagers were
being put at risk by exposure to drug pedlars or by being enticed into meetings
with strangers. The monitoring was said to be ineffective at stopping these
abuses. In October 1987 a report by the Liverpool Trading Standards Officer
highlighted abuse of the service. BT investigated the Liverpool service and
agreed that the required standards were not being maintained there. Despite
various efforts to tighten up procedures in order to minimise abuse, complaints

  2.10. In December 1987 the DOT pressed BT to introduce the measures of
contracting in and itemised billing. The DOT also commissioned a survey of
public opinion on the service (the findings of which are described in paragraphs
2.11 to 2.14). In February 1988 he requested BT to make the service available
only where the bill-payer had expressly requested the service (ie had 'contracted
in') and where itemised billing was available to show the service's costs. BT
considered that it was impractical and uneconomic to introduce the measures
proposed by the DOT; it decided to discontinue the service without further
contesting the DGT's request because of the public relations damage which it was
suffering. BT's views on the DGT's request and the reasons for its decision are
described in more detail in Chapter 5.
              NOP survey      2.11. At the request of the DOT, NOP Market Research Ltd carried out a
                            public opinion survey about Talkabout in February 1988. The survey was carried
                            out by telephone with a wide coverage of areas in which the Talkabout service
                            operated. It was limited to people aged 30 to 60 to increase the chance that those
                            interviewed would have children living at home. A total of 1,010 people were

                               2.12. The survey found that few of those interviewed had used Talkabout.
                            Twelve of the adults said that they had used it at least once. Twenty-four
                            respondents said that their children had used Teenage Talkabout. These low
                            numbers, compared with a reported usage of 40 million calls in 1987, suggest
                            either an unrepresentative sample or that for adult Talkabout there must have
                            been heavier usage in age groups outside the sample frame, possibly among 20-
                            to 30-year-olds. For Teenage Talkabout the low numbers might suggest that use
                            amongst teenagers may have been greater than parents knew about (the 24
                            parents who knew that their children were using the service reported that only
                            five children had asked permission). None of the parents who had restricted their
                            children's use of the service thought that the restriction had been unsuccessful.
                            Thirteen respondents had noticed an increase in quarterly bills since their
                            children started using Talkabout. Five of these thought that their bills had
                            increased by over £40 a quarter, including one whose bill had increased by over
                            £160 per quarter.

                              2.13. Among parents whose children had not used the services 63 per cent said
                            that they would be unwilling for their children to use them, 31 per cent of parents
                            said that they thought Teenage Talkabout should be banned, 79 per cent thought
                            that it would be a good idea to limit its access to those people specifically
                            requesting it; 93 per cent thought it would be a good idea to show its cost
                            separately on bills.

                               2.14. The majority of the most clear-cut findings of the NOP survey relate to
                            Teenage Talkabout. A number of present chatline operators deliberately do not
                            target their services at teenagers. Most of the chatline operators we talked to said
                            that they took measures to ensure that teenagers did not use the lines, although,
                            of course, their procedures could not be foolproof. If teenagers phone ordinary
                            chatline services the cost is higher than for Teenage Talkabout, since such
                            services are now charged at the 'm' rate (see paragraph 2.56).

Role of BT as operator of     2.15. As the operator of the main telecommunications network in the United
                 network    Kingdom BT plays a central role in the means by which all SPs convey their
                            services to the public. The activities of the other network operators are discussed
                            below (see paragraphs 2.26 to 2.32). Further, the particular form in which the
                            reference services are provided has arisen out of BT's development of the
                            Derived Services Network (DSN). Technical aspects of the DSN are discussed
                            at paragraphs 2.19 to 2.25. In addition BT is itself a provider of the reference
                            services through its business BTE Spectrum, which is described in paragraphs
                            2.47 to 2.52.

                               2.16. The Telecommunications Act 1984 abolished the statutory monopoly of
                            British Telecommunications; it was licensed as a provider of the national
                            telecommunications network in the United Kingdom and remained the dominant
                            provider of the telecommunications network. The licence was transferred to
                            British Telecommunications plc (BT) in August 1984. Mercury Communications
                            Ltd was also licensed as a provider of a public telecommunications network
                            throughout the United Kingdom.
                                2.17. Other licensed public telecommunications operators are: Kingston
                             Communications (Hull), whose system is confined to Kingston-upon-Hull and the
                             immediately surrounding area; the cellular operators, Racal Vodafone Ltd
                             ('RacaT) and Telecom Securicor Cellular Radio Ltd ('Cellnet'—60 per cent
                             owned by BT); and cable companies, which provide cable television services in
                             their areas and are licensed to expand their networks to provide local voice
                             telephony in their franchise areas.

                               2.18. As the main operator of a telecommunications network in the United
                             Kingdom, BT has certain obligations, set out in its license under the supervision
                             of the Director General of Telecommunications (DGT) (see, for example,
                             Appendix 1.1 and paragraph 5.4).

Derived Services Network       2.19. PRS use the DSN, which was introduced as a means of providing
                   (DSN)     automatic freephone services (where the cost of the call is billed to the called
                             party rather than to the caller) and PRS. The DSN involves special switches, lines
                             and logging units. Eight DSN switches are contained in nodes located around
                             Great Britain. These switches interact with the Public Switched Telephone
                             Network (PSTN) to make PRS and freephone available throughout Britain.

                               2.20. The DSN cost over £40 million. It was opened in April 1985, initially
                             only for freephone services. It was modified to enable it to carry PRS calls and
                             full national PRS became available in January 1986.

                               2.21. The way local and national PRS calls are handled is illustrated in
                             Diagrams 2.1 and 2.2.

      Calls to local PRS        2.22. The 0 prefix in all local PRS causes the call to be routed to the parent
                             trunk switching centre (as for an ordinary trunk call). The next three digits in the
                             PRS number causes the call to be routed to the PRS switch unit. The rest of the
                             PRS number identifies the particular service which is being called (many SPs
                             provide a number of different services, each with a separate number). When the
                             call is answered by the SP, the answer signal is sent back to the parent trunk unit
                             to initiate charging at the appropriate premium rate.

                               2.23. The progress of the call is logged by a call-logging unit attached to the
                             circuits from the parent trunk unit. The logger records the details of the call, the
                             number dialled and the start and end time of the call and these data are stored
                             on tape for subsequent processing to determine the call revenue to be paid to the
                             SP. The data can also be processed to provide statistical information for the SP
                             such as the volumes of calls per day or the distribution of calls throughout the
                             day. Such information is particularly important for managed service customers
                             who do not have equipment on their own premises from which comparable data
                             can be extracted.

 Calls to a premium-rate       2.24. Again the initial process follows the normal path for a national call-up
          national service   to the parent trunk unit but, on recognition of the 0898 digits, the call is routed
                             into one of the eight nodes of the DSN. On receipt of the routeing digits from
                             the originating trunk unit, the DSN switch determines the location of the SP
                             which will either be a direct connection off the same switch or a direct connection
                             off one of the other seven switches in the network. Each DSN switch is directly
                             connected to the other seven switches so the call can be routed to the SP either
                             directly or via one more switch at the most.

                               2.25. Call-logging units log details of all calls as they enter the DSN in a
                             similar way to the process on the local service. The call-logging data are collected
                             daily and sent to a central computer centre for processing to produce statistics
                             and SP payment details.
                         Diagram 2.1

                                            — Telephone

                                            — Local line

                                            — Local Exchange

                                            — Junction route

                                            - GSC/DMSU

                                            — Trunk route

                                            — DSN node

                                                    — Call logging system

                                            — SP line
                                            — Service Provider

                                              Computer centre

Source: BT
                            Diagram 2.2

                                           0077 calls barred

                      0077 call area
                      (London 01-)

  — Local Exchange

  — Junction- route

  -   GSC/DMSU

  — Trunk route

  — Local Premium Rate switch

 - SP line
          — Logging/billing system

 — Service Provider

Source: BT
   Role of Mercury and         2.26. Mercury Communications Ltd (MCL) is licensed under the 1984
others as network public     Telecommunications Act to run a fixed link telecommunications system. It has
     telecommunications      installed a trunk system around Britain and local cable networks in London,
               providers     Manchester, Birmingham, Edinburgh and Bristol. It is interconnected with the
                             other network providers mentioned above, so as to ensure that calls can be made
                             from one system to another (the 'any to any' principle).

                                2.27. Mercury has about 18,000 customers. Many are directly connected to
                              the Mercury system. Others are indirectly connected, in that although directly
                             .connected to BT they have contracted with Mercury so that their trunk and
                              international calls are routed via the Mercury system.

                               2.28. Mercury's network of exchanges is entirely digital. One consequence of
                             this is that it is able to offer itemised billing to all its customers. The routeing
                             of calls to SPs can involve the Mercury network as described below.

      Calls from Mercury       2.29. BT is obliged to convey such calls under the terms of its Interconnection
        customers to SPs     Agreement with Mercury. The agreement does not provide for Mercury to
         connected to BT     collect charges for such calls and pass them on to BT and the SP. However,
                             Mercury is doing this under arrangements agreed with BT but which have not
                             yet been incorporated into a formal agreement. Mercury sets its customer tariffs
                             for such calls at a level which enables it to recover its normal cost-based charge
                             for its segment of the call, while also giving BT and the SP sufficient revenue
                             to ensure that they are remunerated at the same rate as if the call had originated
                             on BT's system.

 Calls from BT customers       2.30. BT is obliged under the Interconnection Agreement to convey calls to
      to SPs connected to    SPs connected to Mercury. Revenue collection is not covered by the agreement
                Mercury      and Mercury has not been able to reach an arrangement with BT to cover it. As
                             a consequence there are at present no Mercury-connected SPs. The views of
                             Mercury on the reference are set out in Chapter 5.

 Other network operators       2.31. There are no PRS provided on either the Cellnet or Kingston-upon-Hull
                             networks, although subscribers on these networks can access the BT PRS. There
                             are some SPs which operate from the Racal-Vodafone network, although some
                             of those giving evidence to our inquiry raised the question as to whether this was
                             permitted by the Racal-Vodafone licence.

                               2.32. Mercury and the other network operators above have agreed with the
                             DOT to accept modifications to their licences corresponding to any amendments
                             to the BT licence which may result from our inquiry.

    Size of the market for     2.33. PRS have only been operating for a few years and their initial growth
        reference services   has been very rapid. This is illustrated by the figures for SPs, calls and revenue
                             quoted below.

                                2.34. The full national PRS facility was made available by BT in January
                             1986. The name 'Callstream' was adopted in June 1987. Prior to this BT had
                             started a local trial for PRS in London in February 1985 and some independent
                             SPs had begun local London services in November 1985. Chatlines had been
                             started earlier still, with a BT trial of its Talkabout service in Bristol which began
                             in April 1983. In 1987 several chatline sevices were launched to compete with
                             BT's Talkabout. BT withdrew Talkabout in early 1988 so that chatline services
                             are now only provided by independent SPs.
                                2.35. Prior to 1986 a limited range of recorded information services were
                              provided by BT at local call rates under the name 'Guidelines'. The service used
                              most was the 'speaking clock'; others included music tapes and sports
                              information. In 1983/84 these services attracted 460 million calls, of which 260
                              million were to the 'speaking clock'. The services were discontinued as PRS
                              were introduced. The only survivor is the speaking clock service, now known as
                              Timeline and charged at local rates.

                                2.36. Before 1987 therefore the industry was very small and not fully national.
                              Figures for BT's own SP, BTE Spectrum, are included in those quoted below.
                              The figures for numbers of calls and revenue to Talkabout, BT's chatline service
                              which ceased operation in 1988, are not included but are mentioned in paragraph

                                2.37. The number of SPs is now around 120, operating about 11,000 lines in
                              total. About 80 SPs operate national services, while about 50 operate local
                              services. There is some overlap, with firms providing both local and national
                              services. The number of lines grew from a few hundred in June 1986 to about
                              2,600 by June 1987, 6,500 by March 1988, and about 11,000 by June 1988.
                              There are about 700 lines in BT's managed service.

                                2.38. The number of calls made to SPs of both local and national services was
                              about 39 million in 1986/87 and 107 million in 1987/88. The figures by quarter
                              grew steadily from 24 million in Quarter I of 1987/88 to 30 million in Quarter
                              IV. There was a substantial jump in calls to 43 million in the first quarter of
                              1988/89. To put these numbers in context, the total number of national calls was
                              about 26 billion.

                                2.39. The figures for gross revenue show a similar pattern to that shown by
                              calls. Gross revenue is the total income generated by the calls (equal to the
                              amount paid by callers minus VAT) which is then split between BT as network
                              provider and the SPs. Total gross revenue was about £20 million in 1986/87, and
                              £67 million in 1987/88. There was a steady quarterly growth to £19 million in
                              the fourth quarter of 1987/88. The first quarter of 1988/89 (April to June) gave
                              gross revenue of over £25 million and BTs projection for gross revenue for
                              1988/89 is £131 million. BT forecasts that revenues will approximately double
                              in the next five years. An analysis of income generated according to type of
                              service is described at paragraph 2.67.

     Relative importance of     2.40. Local services are provided in London and six provincial locations.
national and local services   Calls to a SP in one of these locations can only be made from within the location.
                              There is no interconnection of these locations. Compared with national services,
                              local services are small in terms of number of lines, number of calls and revenue
                              generated. The total number of lines operated by local services was about 450
                              at the end of June 1988, compared with about 11,000 operated nationally.
                              Revenue to SPs from local services in 1987/88 was £4-4 million compared with
                              £37-1 million earned by national services. Work is currently under way to
                              enlarge the provincial catchment areas to create eight regions which would
                              provide complete but non-overlapping coverage of the United Kingdom.

   Distribution of calls by     2.41. The price of PRS to callers differs between peak and off-peak periods
               time of day    (38.pence per minute peak, 25 pence per minute off-peak). Data for the quarter
                              to June 1988 show that calls were split approximately 50:50 between peak and
                              off-peak periods. Some services by their nature will be used during the peak
                              hours (eg share prices, midweek horse-racing or cricket commentaries) while
                              others will be used outside normal working hours (eg weekend sports
                               2.42. The present differential rates for PRS were introduced in November
                            1986. Before this date the price differential between peak and off-peak periods
                            was larger (rates were 46 pence per minute peak and 23 pence per minute off-
                            peak). In 1986/87 the split of calls to PRS was 60:40 as between peak and off-
                            peak periods. The shift away from the peak period has been attributed to greater
                            promotion of the off-peak periods by SPs. This stemmed from a change in the
                            structure of royalty payments, giving SPs greater incentive than previously to
                            promote off-peak use of their services. The details of the structure of royalty
                            payments are discussed in paragraph 2.59.

Average duration of calls     2.43. For all PRS the average duration of a call was just under 3 minutes
                            (quarter to June 1988). In the corresponding quarter in 1987 the average call
                            duration was 2 minutes 25 seconds. There is insufficient evidence to establish
                            whether the increase between these two quarters is indicative of a trend—in the
                            other quarters of 1987/88 the average call duration fluctuated between 2 minutes
                            16 seconds and 2 minutes 42 seconds. We have no statistical information on the
                            average duration of the recorded messages provided by SPs. However, a number
                            of SPs said that their messages were almost all of a duration of 4 minutes or less.

                              2,44. BT categorises SPs according to what it understands to be the main type
                            of service offered. This categorisation is approximate but it shows that the
                            average call duration in the first quarter of 1988/89 was longest for the chatlines
                            category at 4 minutes 36 seconds. For dating services it was just under 4 minutes
                            and for general sports 3 minutes 50 seconds. These figures should be treated with
                            caution: in some quarters of 1987/88 chatline services' average call duration was
                            lower than the average for all services whilst figures for dating services have only
                            been available in the last two quarters. However, general sports services have
                            always had an average call duration longer than the average for all services. In
                            evidence to us a number of chatline operators estimated that their average call
                            duration was around 3 to 4 minutes. Depending on whether calls were made in
                            peak or off-peak periods a 4-minute call from a subscriber would cost £1 -52 or

                              2.45. Table 2.1 shows that in the first year of operation, 1986/87, the
                            Callstream service had a net revenue (net of royalty payments to SPs) of £8 • 9
                            million, representing a loss of £1 -6 million, a negative return of 10 per cent on
                            assets employed. In 1987/88 net revenue had increased to £25-7 million and the
                            service made a profit of £6 • 9 million, a 30 • 1 per cent profit on assets employed.
                            Gross revenue for 1988/89 is projected at £131 million, more than double that
                            of 1987/88.

                            TABLE 2.1 Profit and loss account—Callstream services
                                                                      £ million
                            Operating costs
                            PSTN costs
                            DSN costs
                            Royalties                             Details
                              Total field costs                omitted. See
                            Product management                   note on
                            UKC central expenses                 page iv.
                            Corporate overheads
                              Profit before taxation
                            Assets employed
                            Return (%)
                            Profit on net turnover (%)
                              Source: BT.
                               2.46. The operating costs for Callstream relate to the technology by which it
                            is provided, explained in paragraphs 2.19 to 2.25. Because all Callstream calls
                            make use of the PSTN they are apportioned a cost which is half the full cost of
                            an average national call. This proportion is based on estimates of the average
                            distance that a Callstream call is carried by the PSTN. DSN costs are the share
                            of full DSN costs which can be attributed to PRS. (DSN is also used by Linkline
                            service where the subscriber to whom a call is made pays all or part of the cost
                            of the call). Costs of analogue equipment in the DSN are being written off over
                            three years; costs of digital equipment over five years. There are in addition
                            central overhead costs to be carried. BT estimates that, on the assumption that
                            traffic levels stabilise after 1988/89, the investment in DSN will generate an
                            internal rate of return of 19-51 per cent by the end of 1992/93. This is probably
                            rather less than the rate of return for BT on an ordinary telephone call. However,
                            if traffic growth were to continue after 1988/89, the rate of return could become
                            much higher.

Operation of the services     2.47. BT is itself a SP, through British Telecom Enterprise (BTE) which is
              BT as a SP    part of BT's Communications System Division. Most of BTE's PRS are provided
                            through its division Spectrum.

                              2.48. As already mentioned in parargraph 2.34, BT introduced the first PRS,
                            with a local chatline service in April 1983 and a message service (Citycall) in
                            February 1985. BTE Spectrum has taken on and developed the earlier services.
                            At present it operates Citycall, a range of financial information services;
                            Supercall Sport, with sports news and commentary services; and Livelines, a
                            group of entertainment and advice services and a televoting service.

                              2.49. In addition BTE runs 'audioextensions'. These services, normally
                            associated with magazines, enable subscribers to dial an 0898 number for more
                            information on a chosen topic. BT also has 'one-on-one' services provided by the
                            Telephone Marketing Services (TMS) Division of BTE. So far, these services
                            have been used to provide information to callers about hotels and restaurants on
                            behalf of a BT client and, in a pilot scheme, to give information derived from
                            Yellow Pages.

                              2.50. BTE Spectrum is currently the largest SP in operation in terms of
                            number of lines, calls and net income. All its services are national rather than
                            local. In the first quarter of 1988/89 its net revenue was 13 per cent of all SPs'
                            revenues. It receives its income in exactly the same way as the other SPs, based
                            on the number of PRS calls it receives.

                               2.51. Its relations with the division of BT which runs the telephone network
                            (UK Communication—UKC) are governed by conditions set out in its licence in
                            accordance with the Telecommunications Act 1984. These require BTE
                            Spectrum to operate without any cross-subsidy from UKC. UKC must not
                            disclose any information about customers to other parts of BT and it must not
                            treat BTE Spectrum preferentially to its other customers. BTE Spectrum told us
                            that it had similar problems to other SPs in acquiring sufficient lines.

                              2.52. Despite the measures that BT has taken to enforce these conditions, there
                            have been accusations from SPs that BTE Spectrum is in an unfairly
                            advantageous position. These views are covered in Chapter 4.

    Contracts between BT      2.53. All SPs using Callstream enter into a contract with BT as the network
                 and SPs    provider. Formerly there were separate contracts for SPs depending on whether
                            they were offering national or local premium services, or using BT's managed
                            service. Since April 1988 there has been one set of conditions covering all

                               uses of Callstream. SPs on the old contracts will be brought on to the nev
                               conditions. The main provisions of the Callstream condition are set out below
                               The contracts incorporate the relevant provisions of the Telecommunications Ac
                               1984, eg the transmission of messages that are 'grossly offensive, or of a
                               indecent, obscene or menacing character' is an offence under section 43 of th

                                 2.54. Other contractual terms include the following:
                                 — The customer must not provide services via Callstream which ar
                                     unsuitable or likely to bring BT or Callstream into disrepute (suitability i
                                     determined ultimately by BT).
                                 — The customer must not provide information in the service which would b
                                     a criminal offence or otherwise unlawful.
                                 — BT has the right temporarily to suspend the service if the number of call
                                     to a SP are of such a quantity as to cause exchange congestion.
                                 — The customer must comply with the code of practice published by th
                                     Independent Committee for the Supervision of Telephone Informatio'
                                     Services (ICSTIS) and with any recommendation made by ICSTIS (se.
                                     paragraphs 2.106 to 2.112). BT has the right to bar access to a service ii
                                     the event of a breach and to terminate the contract for persistent breach

                                 2.55. In providing its managed service, BT has the right to refuse informatioi
                               in messages which breach the provisions above relating to suitability or legality

     Pricing of the services     2.56. The nature of PRS is that callers pay higher rates than for ordinar
                               inland phone calls. Currently, for national PRS services, the calls to subscriber,
                               are charged at the 'm' rate which is 38 pence per minute peak and 25 pence pe
                               minute off-peak (including VAT). National SPs therefore have no choice over th<
                               price at which their services are available to the public. Local PRS services cai
                               be charged at 'a', 'b', or 'm' rates. However, all local SPs except one, a loca
                               radio station, have chosen to provide their services at 'm' rates. The 'a', 'b' am
                               'm' rates are set out below in pence per minute including VAT.
                                                       Standard      Cheap
                                       'a'                 9           3
                                       'b'                13           7
                                       'm'                38          25
                                 2.57. Because of technical limitations BT only has five charge bands availabl-
                               for inland calls. Its choice of charges for the PRS was therefore limited to tries-
                               charge bands. The 'm' rate chosen for the national PRS is the highest of the flv;
                               rates and is also used for calls to mobile phones and calls to the Irish Republic

                                  2.58. Technical developments will make more charge bands available i.
                               future (on current schedule by March 1990). There will then be 33 charge band
                               available, for all services including international ones, as compared with the 1
                               available at present. BT has not yet decided how the new charge bands will b
                               allocated to services when they are introduced.

           Payments to SPs       2.59. For national PRS, the current royalty payment to SPs is 17-5 pence pe
                               minute (net of VAT), regardless of whether calls are made peak or off-peak. Fo
                               local SPs the payment is 21-5 pence per minute. Prior to November 1986
                               payments to national SPs were 50 per cent of gross revenue, ie 23 pence pe
                               minute for peak time calls and 11-5 pence per minute for off-peak calls. Thi;
                               gave SPs little incentive to promote off-peak use of services. A general tari^
                               revision in November 1986 resulted in a change to the royalty paymeii
                               arrangements and the fixed rate payment to SPs was introduced. This was par
                               of a wider BT policy to relate charges more closely to costs.

                              2.60. In effect BT sets the price at which national PRS services are available
                            to the public, within the technical constraints determining the limited number of
                            charge bands. It also decides the price at which it makes the Callstream facility
                            available to SPs. It thus determines the price of output for the SPs and the cost
                            to them of the essential technical means by which they deliver their services. SPs
                            can compete only on quality of service and through promotion.

                              2.61. In its pricing policy BT's aim is to achieve a reasonable rate of return
                            on its investment in the DSN. As has been mentioned in paragraph 2.46, on
                            certain assumptions about traffic volume, a rate of return of 19-51 per cent will
                            have been achieved by the end of 1992/93.

                               2.62. Because of the technical limitations on charge bands, BT's pricing
                            policy has been fairly easy to decide. Its adoption of the highest charge band
                            available, the 'm' rate, does not seem to have stifled strong growth. Similarly the
                            levels of payments to SPs seem sufficient to have encouraged a flow of new
                            entrants into the industry and considerable investment by existing firms.
                            Evidence from our survey of SPs suggests that profits and growth levels are
                            attractive for well-run firms (see paragraph 2.66 onwards).

                              2.63. It is not possible from the evidence of operations to date to make any
                            estimates of the price elasticity of demand for the reference services. When the
                            November 1986 price changes were introduced the availability of the reference
                            services was rapidly increasing. Evidence from BT and SPs is that promotion of
                            services plays an important part in their growth, so that off-peak use of the
                            services increased even after their price, relative to peak-time use, was raised.

                              2.64. SPs have said in their evidence that they would like to be able to compete
                            on price. In other countries, such as the USA, SPs offer services at a variety of
                            rates. It would clearly be to the consumer's benefit if such price competition were
                            to become possible.

  SPs and economics of         2.65. The MMC undertook a survey of SPs to obtain information on matters
          their services    including the type of services provided, numbers employed and profitability. BT
                            also provided us with information on net income and the number of calls made
                            to each SP. Details of the survey results are given at Appendix 2.1.

Revenue and profitability      2.66. The data from the above sources show that over the past year 15 firms,
                 of SPs     including BTE Spectrum, have earned net revenues of £1 million or more. At
                            least another 23 firms earned net revenues of £100,000 or over. A substantial
                            number of the remaining firms had not yet been operating 12 months, but their
                            quarterly earnings indicated that they could expect to earn at least £100,000 over
                            a full year. Many of the firms answering the MMC questionnaire were unwilling
                            or unable to give information on costs, so that our assessment of profitability of
                            firms hi the industry is based on partial data. However, the greater part of the
                            firms which did provide information were making healthy profits; in some cases
                            these profits were very high. About a third of all firms were making losses. The
                            industry is a new one which is providing services to a large but previously
                            untapped market; it thus exhibits both high profits for firms which have
                            established themselves quickly and losses for firms which cannot match the
                            efficiency or market appeal of the profitable firms. It has not been possible from
                            the data available to undertake an analysis of profitability by type of service
                            provided, although an approximate analysis by revenue generated is shown

     Analysis of SPs' revenue       2.61. BT analyses its data on calls and revenue by category of SP. This is by
         according to type of    its own admission a very approximate classification since it depends on an
                       service   assessment by BT of the SPs' service at the time they start operations. Some SPs
                                 provide services which cut across categories. Others change the nature of the
                                 services they provide and since they have no obligation to inform BT when they
                                 do so they are not reclassifled. Aggregation of net income to SPs whose services
                                 were mainly information services gave a total of £8 • 02 million in the first quarter
                                 of 1988/89. This constitutes 43 per cent of the total for all services of £18-602
                                 million. The SPs in these categories provided information such as share prices,
                                 weather forecasts and travel news. The remaining SPs earned net income of
                                 £10-582 million, 57 per cent of total net income. Their services included sports
                                 information and commentaries, music and other entertainment and chatlines.
                                 Within this total the chatlines category had a net income of £2-596 million (14
                                 per cent of the total). Typically firms in the top ten for revenue provide both
                                 information and entertainment services. Several of the top ten operate chatline
                                 services. Of over 50 SPs which gave us information on their services, only seven
                                 provided one-on-one services. In one case the service provided answers to
                                 detailed trade queries. The others were conversation or advice services.

                Costs of entry     2.68. Various estimates were given to us of the costs necessary to set up as
                                 a SP. The cheapest way is to make use of BT's managed service where BT
                                 provides and operates equipment on behalf of the SP. The SP need only incur
                                 the costs of the rental of answering equipment and facilities, the provision of
                                 recorded message or messages and the cost of promoting their service. BT
                                 estimated that the minimum cost for equipment and line rental would be about
                                 £5,000. The SP would also need to produce the messages and promote its

                                   2.69. A number of SPs are members of the Association of Telephone
                                 Information and Entertainment Providers (ATIEP). Three of the larger chatline
                                 operators make up the Independent Telephone Chatline Association (ITCA). The
                                 ITCA companies voluntarily operate a code of practice in the provision of their
                                 services (see also Appendix 4.3). This has various provisions additional to the
                                 requirements of the SPs' contract (see paragraph 2.54). They include:
                                    — constant monitoring of conversations (Talkabout had only sample
                                    — no chatlines or advertisements specifically aimed at teenagers;
                                    — no under-18 callers allowed on chatlines (a call-back procedure to check
                                        date of birth is used when monitors are suspicious);
                                    — announcements every 15 minutes of rates of cost of calls; and
                                    — cutting off customers who break rules.

                                   2.70. ITCA also operates a compensation fund and has contributed towards
                                 high bills incurred through use of its services when it was established that they
                                 resulted from unauthorised use. ITCA proposed that its voluntary code should
                                 become compulsory (see paragraph 4.22).

Numbers employed by SPs            2.71. From the returns to our survey of SPs we received notification of a total
                                 number of employees of about 690 foil-time and 253 part-time. Although the
                                 response to our survey was only 55 returns from the 99 firms identified as trading
                                 in August 1988 we know that our returns covered most of the larger firms in the
                                 industry (we established from BT's data on revenue that we had replies from
                                 16 of the 21 firms with net revenue of more than £250,000 in the first quarter
                                 of 1988). We believe therefore that a reasonable estimate of the range of total
                                 full-time employees is between 750 and 1,000, with part-timers estimated to be
                                 about 300.

   Users of the services     2.72. The call-logging equipment described in paragraph 2.23 does not record
                           total usage of PRS by individual subscribers. There is therefore little data on the
                           incidence of heavy use of the services. BT maintains a continuous sampling
                           procedure and has also commissioned market research on PRS. This research
                           gives some indication of the types of users of the services and of the incidence
                           of frequent users of the services.

                             2.73. The Total Information Exchange Sample (TIES) has a sample of
                           customers classified into broad types. Data from this sample in the four months
                           to May 1988 indicate that the largest category of calls made to PRS was
                           residential, comprising about 58 per cent of all calls. The other 42 per cent was
                           made by businesses, with small businesses the largest group amongst businesses,
                           accounting for 19 per cent of calls.

                              2.74. Amongst residential customers, a measurement of call frequency in the
                           month of May 1988 showed that about 8 per cent of customers made use of PRS.
                           The major part of this group, 7-4 per cent of customers, made between one and
                           ten calls. Only 0-11 per cent of total residential customers made more than 30
                           calls in the month. One caller (out of the sample of 12,000) made over 100 calls
                           in the month (344 calls at a cost of several hundred pounds). The average number
                           of calls per customer was 0-09. If the sample is representative of the whole
                           population (BT has 18-275 million residential customers) then more than 20,000
                           customers make more than 30 calls a month.

                             2.75. Use of the services had grown steadily over the four months of
                           measurement by 81 per cent in total for residential customers and by about 33
                           per cent for business customers.

Evidence of unauthorised     2.76. The DOT identified the major potential detriment to the public interest
                     use   associated with PRS as the fact that they increased the likelihood of unauthorised
                           use of telephones. Although this risk had always existed with telephones, PRS
                           increased it both because they offered services via the phone which had never
                           been available before and because these services were charged at a premium rate.
                           BT's standard conditions for the provision of telephone lines to customers make
                           customers liable for all charges for calls on their line.

                             2.77. Unauthorised use in the home is most likely to be by children. In
                           businesses it is any use of the phone for personal purposes which is not permitted
                           by management. Certain services are likely to lead to the worst cases of
                           unauthorised use because they are virtually 'open-ended'. Chatlines are the
                           obvious example, but live sports commentaries and interactive games also share
                           the characteristic of being 'open-ended' in that access to the service can be
                           continued over very long periods. Recorded messages, by contrast, are rarely
                           more than five minutes long. As a caller would not be likely to listen to the
                           message over and over again this implies a natural duration to the call. The caller
                           could, however, call a number of different message services.

                             2.78. Some evidence of unauthorised use comes from complaints from phone-
                           subscribers, to OFTEL, to BT or to ICSTIS (see paragraph 2.109). There must
                           also be unauthorised use which never comes to light, either because the
                           subscribers have not complained or because they are unaware that unauthorised
                           use has been made of their phones, presumably because it is not of a scale which
                           leads to a noticeable difference in the quarterly bill.

                             2.79. BT provided us with a summary of 33 complaints about its own
                           Talkabout service relating to high bills, received at its headquarters between

                            April 1987 and February 1988. BT also undertook a specific sampling exercise
                            for us to estimate the total number of complaints it has received at both
                            headquarters and district level relating to PRS. Often the complaint arises
                            because the subscriber receives an unusually high bill. Investigation then
                            sometimes reveals that unauthorised use of PRS is the reason for the increase in
                            the bill. About 90 per cent of the complaints in BT's sampled areas came from
                            residential customers compared with 10 per cent from businesses. BT's research
                            led to an estimate that 7-4 complaints a month per million residential customers,
                            or 2 per cent of all complaints received, related to Callstream billing. These
                            estimates came from samples taken in the months of June 1987, December 1987
                            and June 1988. The June 1988 figure was higher than the earlier two months.
                            An estimate based on June 1988 alone would give an estimate of 10-1 billing
                            complaints a month per million residential customers. We can translate these
                            estimates into annual figures given that BT had an average number of 17-972
                            million residential customers over the three months, with 18-275 million
                            residential customers in June 1988. Based on the figures from the three separate
                            months, one could expect about 1,600 complaints in a full year (or 2,910 at the
                            upper 95 per cent confidence limit). Using the higher June 1988 figure would
                            give an estimate of 2,200 (or 4,870 at the upper 95 per cent confidence limit).
                            The average amount disputed in the cases sampled averaged £285 and the highest
                            amount under dispute was £1,892.

                              2.80. Most of the BT cases sampled were settled by the customers agreeing
                            to pay the bill. Any high bills caused by faulty equipment would already have
                            been identified and therefore would not be included in the above figures. The
                            majority of these cases can therefore be taken as examples of either unauthorised
                            use or of customers using PRS but not realising the cost.

                              2.81. Complaints made to OFTEL gave more details in a certain number of
                            cases. OFTEL received about 125 complaints relating to Callstream services
                            from the beginning of 1987 up to mid-1988 (see Appendix 3.2). The quarterly
                            bills involved ranged up to £1,450, with an average of about £300. The
                            customers' 'normal' bills were usually in the range of £60 to £90. In the vast
                            majority of these cases the high bills were linked to the use of PRS, either by
                            the subscriber or by another member of the household. In most cases the services
                            involved were chatlines (often the now discontinued Talkabout). A number of
                            recent cases of unauthorised use reported in the press have involved still larger
                            amounts, in one case approaching £3,000.

                              2.82. Very few PRS-related complaints came from the business sector. This
                            could be because there is little unauthorised use of PRS in business. Most
                            employees would find it difficult to engage in extensive unauthorised use of PRS
                            because of the presence of others and because of normal work duties; and a
                            number of large businesses have exchanges which enable them to implement call-
                            barring of PRS numbers. It may also be that because business bills are larger than
                            domestic bills unauthorised use would be less easily detected. Also businesses
                            may be more inclined to take on themselves the onus of preventing unauthorised
                            use of their phones, rather than complaining to BT.

     Billing arrangements      2.83. BT customers receive their bills quarterly, with itemisation of different
                            calls only for operator-connected calls (the vast majority of calls made are
                            automatically connected). Thus unauthorised use of phones may go on for over
                            three months before the subscriber has any indication of the financial effect.
                            When the bill arrives, the only sign that unauthorised use has taken place is its
                            size compared with the subscriber's normal bills. If the bill is large in comparison
                            to previous bills, it is automatically kept back by BT for checking of the meter
                            reading before despatch to the subscriber. If no meter errors are found there

                              may be monitoring of the calls made to the line for a few days in order to identify
                              the reasons for abnormally high usage. One effect of the delay in despatch of the
                              bill can be to allow unauthorised use to continue on the line during the days in
                              which BT is checking the bill.

                                2.84. Bills are payable on demand; in practice reminders are issued.
                              Disconnection for non-payment would normally take place about five to six
                              weeks after despatch of the bill. BT customers can choose to pay bills by direct
                              debit, either through monthly budget accounts or quarterly automatic direct

                                2.85. When BT and a customer fail to resolve a dispute over a bill then the
                              customer may choose to go to arbitration. Very few such cases have involved
                              Callstream services; there were four in 1987 and two in 1988. In all cases
                              arbitration found in BT's favour but small ex gratia payments to customers were
                              paid by BT in three cases because of the delay involved in checking the bills.

                                2.86. BT has considered monthly, rather than quarterly, billing. The estimated
                              cost, given current metering technology, would be £300 million a year and
                              research suggests that this would be uneconomic from the customers' viewpoint
                              at present.

 BT's plans for itemised         2.87. BT's licence places it under no obligation to introduce itemised billing.
                   billing    However, it is currently implementing a programme involving exchange
                              modernisation, one result of which will be to make possible the introduction of
                              itemised billing. It is forecast that by the end of 1990 itemised billing will be
                              available to almost 90 per cent of London telephone customers and about 50 per
                              cent of BT's customers in the rest of the country, this latter percentage rising to
                              75 per cent by 1992. 100 per cent national availability would be achieved by

                                 2.88. Itemised bills will provide the following information to the customer for
                              all calls of ten units and over:
                                — date and time of call commencement;
                                — destination of call; and
                                — duration and price of call.

                                2.89. The ten-unit (51 pence including VAT) threshold was chosen because
                              below this level of price the number of calls increases rapidly and would threaten
                              to overload the current exchange software. Also, BT believes that residential and
                              small business customers are more interested in itemisation by value of call than
                              by type of call. The 51 pence threshold would mean that PRS calls at the 'm' rate
                              of shorter duration than 1 minute 21 seconds peak or 2 minutes 2 seconds off-
                              peak would not be itemised. Average call durations of all PRS calls have been
                              longer than 2 minutes 14 seconds in the last five quarters (to June 1988). BT is
                              committed to reviewing the ten-unit threshold in 1990 when more advanced
                              exchange software will be available.

More frequent billing and       2.90. The introduction of digital exchanges and of BT's customer service
        'exception' billing   system could make possible a system of notification of customers whenever their
                              cumulative bill exceeded a predetermined amount, eg a certain percentage higher
                              than their average bill. This would be more effective than regular itemised billing
                              as a means of alerting customers of possible unauthorised use of their lines.
                              Digital exchanges would also facilitate regular billing at more frequent intervals
                              than quarterly. BT has not yet taken any decisions about more frequent billing
                              or about providing an 'exception' billing facility.

 Present options for call-            2.91. Call-barring is the name given to prevention of calls from a line to a
barring and effect of new          particular number or group of numbers. The crudest form of call-barring
               technology          equipment is a mechanical lock on a telephone, which bars all calls on the line.
                                   In order to achieve more sensitive barring, eg to bar all trunk calls but not local
                                   calls, more refined equipment is necessary. Greater refinement involves
                                   'recognising' a greater number of the digits in phone numbers. Thus to bar only
                                   PRS calls, but to allow all other calls, facilities would need to recognise four
                                   digits, eg 0055, 0066, 0077, 0898, 0830, 0836. Barring of 0836 calls would also
                                   entail barring of calls to cellular telephones. It might also be necessary to bar
                                   international calls to avoid access to overseas SPs. The available call-barring
                                   facilities are discussed below under the headings of network and customer
                                   premises. Each section includes discussion of possible future developments in
                                   call-barring facilities.

      Network: BT-controlled         2.92. This facility operates through the local exchange. On request from a
        barring at exchanges       customer the exchange bars calls of certain classes on that customer's line. On
                                   electro-mechanical exchanges the only option for call-barring is to bar all
                                   outgoing calls. On TXE4 exchanges only two classes can be barred, either all
                                   calls or international calls. On digital exchanges five classes can be barred:
                                     (a) all calls;
                                     (b) national and international calls;
                                     (c) international calls;
                                     (d) operator calls; and
                                     (e) star services.

                                     2.93. Refinement of the present system would only be possible on digital
                                   exchanges. New classes of numbers for barring could be introduced, eg a class
                                   to include all PRS numbers. BT is committed to doing this. The earliest date such
                                   changes could be introduced on System X digital exchanges is late 1989; on
                                   AXE 10 digital exchanges late 1990. The percentage of lines served by digital
                                   exchanges is currently 14 per cent, planned to rise to 43 per cent by 1990, 75
                                   per cent by 1994 and 83 per cent by 1997.

     Network: call-barring on         2.94. It would be technically possible to bar calls to PRS numbers by
      the basis of tariff group    allocating a new tariff group value to customers wishing to bar them. TXE4E and
                        category   digital exchanges would be able to identify this particular tariff group value and
                                   bar the calls. This means of call-barring would only be feasible when additional
                                   tariff rates become available, in 1990 at the earliest (see paragraph 2.58) and
                                   modifications to exchange systems' data and software would be necessary.

Network: DSN closed user             2.95. A facility should be available from late 1990 on digital and TXE4
                 groups            exchanges to allow acceptance of calls by SPs from authorised numbers only.
                                   However, for technical reasons the closed user group for any particular SPs
                                   number would be limited to about 5,000. There may also be technical constraints
                                   on how many SPs numbers could be included in such a scheme—this would only
                                   emerge after technical discussions with the developer.

   Barring by use of multi-          2.96. This facility is available on digital exchanges only. The customer also
frequency (MF) keyphones           needs either an MF keyphone or a hand-held MF tone generator. The customer
                                   can bar the same classes of numbers as for BT-controlled barring (see paragraph
                                   2.92). Barring is done by keying in a PIN (personal identification number). The
                                   proportion of domestic customers with MF keyphones is projected as follows:
                                                                      per cent
                                           2988/89       1989/90       1990/91      1991/92      1992/93
                                              15            30           45            55           65

Network: longer-term        2.91. BT told us that it is not possible to obtain estimates of price and
             options      feasibility of longer-term options without putting detailed specifications to
                          manufacturers. The lead time on major developments from initial ideas to full
                          provision in the network is four to six years.

  Barring at customer       2.98. A number of the range of switches available from BT and other suppliers
             premises     enable barring to be undertaken on private exchanges. The development of these
                          facilities is a function of demand in the business sector which is influenced by
                          the possible unauthorised use of phones at work.

      Telephone locks       2.99. As already mentioned, the crudest form of telephone bar for domestic
                          use is a mechanical phone lock. For phones with a dial, small mechanical locks
                          costing a few pounds have long been available. The disadvantages are, first, that
                          the lock can be picked or broken, and second, that locks prevent any use of the
                          phone other than for the key-holder. Mechanical locks which allow 999 calls only
                          are also available for use with push-button phones.

Development of phone        2.100. BT estimates that if an existing phone model were to be modified to
                locks     incorporate a mechanical lock, the likely time-scale to introduction would be 12
                          months and about £10 would be added to the unit cost. If an existing product were
                          modified using a software lock, ie a PIN, development would take about 18
                          months and the additional cost per unit would be about £6. Prices to customers
                          would increase by £12 to £15 per unit.

                             2.101. A call-barring unit which is installed into the phone socket is currently
                          available at a cost of £43 plus VAT. Manufactured by Telspec, it is fully
                          approved for connection to the network. The current model needs to be wired in
                          by BT (at a cost of £25 plus £1 quarterly maintenance). A plug-ended version
                          is to become available which will not incur installation charges; it would plug into
                          and be locked on to the standard BT socket. The Telspec unit is operated by a
                          key and can have a different number of pre-programmed settings. For example,
                          one model has four settings:
                            (a) allows all calls;
                            (b) bars international calls;
                            (c) bars international and trunk calls (including Callstream); and
                            (d) allows only 999 calls.
                          The setting can be changed with the key.

                            2.102. A household with more than one plug-in socket would require a wired-
                          in or lockable unit for each socket for barring to be effective.

  Phones with built-in       2.103. Call-barring telephones have been offered by BT in the past. They have
     barring facilities   cost significantly more than the standard product and demand has been around
                          10,000 to 15,000 units annually. To put this in context, the total number of rented
                          telephones is estimated to be 24-8 million in 1988/89; the total demand for new
                          phones, both rental and retail, is estimated at 4,580,000 units for 1988/89. BT
                          does not currently offer call-barring phones.

Possible developments       2.104. Call-barring telephones could be developed to offer barring at six
                          different levels:
                            (a) barring all calls except 999;
                            (b) barring all calls except 999 and numbers programmed into the memory:
                            (c) barring all '0' level calls (ie all non-local calls);

                                (d) barring selected 'area' or 'service' codes ('area' codes identify an area in
                                    inland trunk calls; 'service' codes identify services such as Callstream);
                                (e) barring selected single numbers; and
                                (/) switching the phone between ordinary and payphone use.

                                 2.105. BT advised us that all the above options are technically feasible but
                              would require development and engineering design work. Before this is done it
                              is not possible to give estimates of cost and development time-scales.

  Control over content of        2.106. ICSTIS was set up in August 1986. BT and ATIEP, the message SPs'
                   services   trade association, had agreed a Code of Practice for PRS at that time and wished
           The Independent    that the application of the code should be carried out by an independent
          Committee for the   committee. ICSTIS was accordingly set up with BT finance and administrative
Supervision of Standards of   assistance. The code gave guidance to SPs on the advertising, promotion and
     Telephone Information    content of services with specific advice on services containing financial, legal or
          Services (ICSTIS)   medical advice, 'adult' services and services aimed at children. The provisions
                              on advertising and promotion incorporate the Code of Advertising Practice of the
                              Advertising Standards Authority (ASA) and the British Code of Sales Promotion

                                 2.107. The members of ICSTIS were chosen by BT in consultation with
                              ATIEP, OFTEL and the DTI. ICSTIS has been chaired from its inception by
                              Louis Blom-Cooper QC. It currently has six members appointed in their
                              individual capacities. They are: Dr Howard Baderman, Consultant Physician,
                              University College Hospital, London, and a magistrate on the Juvenile Bench,
                              London; Presiley Baxendale, a practising barrister and ex-teacher; Anthony M
                              Fisher, a marketing consultant and member of the Advertising Standards
                              Authority; Hugh H Pierce, formerly Head of Local Radio and Assistant
                              Controller Staff Administration at BBC, now retired; Bill Heath, chairman of
                              ATIEP and director of a SP; and Noreen Manning, head teacher at a London
                              secondary school. In September 1987 ICSTIS introduced its own code, based on
                              the 1986 code, which forms the current basis of its role (see Appendix 4.1).
                              However, this code is being updated to take account of developments over the
                              last two years. It is intended that the second edition of the code will be ready for
                              publication early in 1989.

                                2.108. After discussion with BT in January 1988 ICSTIS' remit was
                              confirmed as covering the content of services that was in poor taste as well as
                              content that was offensive, and the ICSTIS Code of Practice is being revised
                              accordingly. A provision is built into the Callstream conditions of service for SPs
                              that they should comply with the ICSTIS Code of Practice (see paragraph 2.54).
                              The possibility of pre-vetting of service content was considered in 1987 but not
                              adopted since it was felt that this would be tantamount to censorship. Monitoring
                              of services on a random basis was adopted on 1 October 1988. BT is providing
                              ICSTIS with the facilities necessary to undertake this.

                                 2.109. ICSTIS' procedures for dealing with complaints are discussed in
                              Chapter 4. ICSTIS received 121 complaints during its first 18 months of
                              operation (September 1986 to April 1988) and has received 102 complaints
                              between April 1988 and July 1988. It is now receiving about 25 complaints a
                              week. The ultimate sanction is the withdrawal by BT of access to the network
                              for services; 15 services have been removed from the network. In addition BT,
                              exercising its own managerial control, has turned down about 15 applications for
                              its managed service.

  2.110. ICSTIS's role has been publicised through a press campaign in
December 1986. An information booklet supporting this campaign was requested
by over 1,000 members of the public. A farther publicity campaign is planned
to coincide with the introduction of a revised Code of Practice, scheduled for the
early part of 1989.

  2.111. ICSTIS is funded by BT, being treated as a cost in Callstream's profit
and loss account. In its first two years of operation its annual cost was £100,000.
This is expected to increase to up to £250,000 in the year 1988/89 following the
establishment of a full-time secretariat in May 1988.

   2.112 Mercury has said that it plans to offer PRS facilities on its network and
it would wish ICSTIS to monitor such services. Mercury would contribute to
ICSTIS costs. Some larger SPs have also indicated a willingness to contribute


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