Patientline provides bedside phone and TV systems

Ofcom will examine deals struck between NHS trusts and two firms - Patientline and Premier Managed Payphones - to install phone systems in hospitals.

The regulator will also investigate the prices charged by the companies for incoming calls to hospital patients.

Patientline's shares were further hit by a warning over future earnings.

The company said revenues per terminal in recent weeks had been about 5% compared with the same period a year ago, and added that income for the year to March 2006 were set to be lower than expected.

Shares in Patientline closed 30p, or 36.59%, lower at 52 pence on Monday.

Vending machines

Patientline said it would "co-operate fully" with the Ofcom probe, which it believed would "vindicate" the terms of the licences and contracts required by the NHS.

We are considering whether the use of the recorded message at the start of each call raises the costs... to excessive levels Ofcom spokesman See Patientline's share price

Patientline sells TV and phone cards through ward vending machines in 150 hospitals around the country. It and Premier Managed Payphones have exclusive agreements with some NHS Trusts to provide bedside communications and entertainment services.

It costs the firms �1m to install the systems and they can only recoup that by charging people to use the services.

As part of their services hospital patients are able to receive telephone calls from their bedside.

Competition worries

There have been complaints to Ofcom that people trying to phone sick relatives are charged up to 49p a minute peak and 39p a minute off-peak to call in.

Others have complained about the duration of the recorded message that callers are required to listen to at the start of each call, which also attracts these charges.

We will co-operate with Ofcom, but we have entered into these deals on the NHS's terms Premier Managed Payphones spokesman

"We have opened this investigation to consider whether the prices that Patientline and Premier charge consumers for making calls to hospital patients are excessive," said an Ofcom spokesman.

"We are considering whether the use of the recorded message at the start of each call raises the costs of making calls to hospital patients to excessive levels."

The watchdog is also looking at whether the agreements Patientline and Premier have with NHS Trusts are anti-competitive because of, amongst other things, their exclusivity and length.

Its investigation is being conducted under the UK's Competition Act and the EC Treaty.

Other services

Patientline, founded a decade ago, has yet to make a profit and reported losses of �11.8m on revenues of �49.4m last year.

The firm's boss, former director-general of the Prison Service, Derek Lewis said the solution to the phone calls costs lay in the NHS taking advantage of other applications offered by Patientline systems.

Premier Managed Payphones has deals with 12 NHS hospitals

These include food ordering, patient surveys and access to clinical information.

Mr Lewis said nearly five million patients use the systems each year, and relatives and friends made 25 million incoming calls to hospitals.

Patientline said it would postpone the installation of new systems at 20 UK hospitals until the situation became clearer.

Premier Managed Payphones, founded in 1991, manages bedside communication and entertainment services with 12 NHS hospitals over 15 year terms.

A company spokesman said: "We will co-operate with Ofcom, but we have entered into these deals on the NHS's terms. They selected the best kit available."