The business; Adam Smith's invisible hand has dialled a wrong number: the market system fails to work for directory inquiries. We have high prices, inaccurate information and a confused public

The business; Adam Smith's invisible hand has dialled a wrong number: the market system fails to work for directory inquiries. We have high prices, inaccurate information and a confused publicThe Home Office really should scrap the emergency services number, 999. It's a disgrace that a government intent on introducing choice into every area of life from hospitals to schools has left the British public with no other option in a crisis but dreary, familiar, old-fashioned 999.

Yes, the number has been used successfully for decades. True, it's short and easily remembered in a panic. OK, it saves hundreds of lives a year. But what are those meagre benefits, weighed against the lack of competition, the sheer monopolistic insult to the British consumer?

I envisage an entirely new system that gives householders the choice of dozens of different numbers and services. Longer, randomly generated numbers, too, not short ones easily brought to mind in the hurly-burly of an emergency. Consumers, watching their homes burning down or their loved ones being mugged, will in future be able to look up the different services on the internet or in a Home Office pamphlet, confident of finding one to match their needs. In their own time.

Bonkers? The decision a year ago to scrap another well-known phone service, the directory inquiries number, 192, is not so different. My own straw poll suggests few people think the new six-digit numbers beginning 118 are an improvement. My friends (a far from random sample, I admit) generally fall into one of three categories.

There are the 118-anoraks. These people know the system has been deregulated. They know they have a choice of more than 120 services. They know that each service has a different tariff structure and that there are vast differences in price, response time and accuracy. They have a pet number, established after hours of research. The best-informed have several, knowing that the price depends on whether they are calling from a mobile or a landline.

There are the 118-tolerators, people with better things to do than worry about the changed system. They call the only number they can remember. This is almost always 118 118 or 118 500--the heavily advertised services. They are, it need hardly be added, comparatively expensive, and certainly dearer than the old 192 service. But what the hell, it's only 50p or so, after all.

And then there are the 118-refuseniks--people who suspect that whatever number they call, they'll be stung. They think the rot set in back in 1994, when BT started charging for its 192 service. They resort to the internet, mutual friends, sometimes to a telephone directory. Most of us are category two. Category one--the well-informed--are rare.


My experience chimes with more scientific research. Ofcom, whose predecessor body Oftel was responsible for the new system, has admitted that 9 per cent of people have stopped using directory inquiries altogether and 25 per cent use it less often. Just 1 per cent are using the service more often. Most can name only one 118 number.

For champions of choice, competition and deregulation--the three gods of economic orthodoxy--it is a puzzling tale. In theory, the shift to 118 should have improved the service and lowered prices. People would gravitate to the best and cheapest services, pushing prices down further and forcing bad providers out of business. The industry would consolidate into a handful of reliable producers.

Instead, there are more providers than ever and most users are almost certainly paying more than under the old 192 system, which cost 40p a time. There is widespread customer confusion and mistrust, and very poor accuracy--one in eight numbers given out is wrong.

True, the accuracy is improving. Some prices are falling. But in general the free-market system has failed--Adam Smith's invisible hand has dialled a wrong number. The National Audit Office is now beginning an investigation.

My guess is that there are two main reasons the market failed. The first is that the sums involved are very small.

Just as the laws of Newtonian physics cease to work at a sub-atomic level, the rules of classical economics go wonky when the sums at stake are less than a couple of pounds. Few people seem prepared to spend the time investigating the best provider and committing its number to memory, when the saving is likely to be just a few pennies. The providers exploit this failing with complicated tariff structures.

My second guess is that the market isn't working because many if not most directory inquiries are made on employers' phones. Customers are using other people's money. The desire for value for money all but evaporates.

No one wants to hear it at Ofcom, but sometimes regulated monopolies are the least worst way of structuring an industry. On the evidence so far, the 192 system should not have been unplugged.

Patrick Hosking is investment editor of the Times