Do please! I love this stuff...
O.K., you asked for it!

Let's start the story about 50 years ago, since this is just before STD (Subscriber Trunk Dialing) arrived on the scene. Only local calls could be dialed directly, and although you were charged for each call they were
not timed, so you could talk for 2 minutes or 2 hours for the same price.
Every subscriber had a meter at the exchange which registered "units," the readout looking much like the odometer on a car. These meters were read periodically for billing and the charges were then simply so many pence per unit (the amount gradually increased over the years, of course).
A local call within one's own exchange clocked up 1 unit. Calls to elsewhere within the local area used a multi-fee metering scheme based upon the distance involved:
Up to 5 miles = 1 unit
5 to 7½ miles = 2 units
7½ to 12½ miles = 3 units
12½ to 15 miles = 4 units
These were the distances between the two telephone exchanges involved, so if the exchange serving the person you were calling was 6 miles from your exchange you'd be charged 2 units for the call, even if your actual geographical locations placed your homes 4½ miles or 8 miles apart. It would have been impractical to charge based upon the actual distance between the telephones. The phone book for a particular area listed all the places you could call for 1, 2, 3, or 4 units.
Anyway, these were the only calls which could be dialed direct. Calls beyond the 15-mile multi-fee range were classed as long-distance and had to be completed by going through the operator, who filled in the call details (date, time, number called, duration) on a docket. These dockets were used to add long-distance calls to the bill separately, charges being based upon time, length of call, and distance involved.
Now, refer back to the A/B coinphone pictured above, which was the standard payphone of the time. Just as with regular residential lines, local calls were untimed, so you could talk all day for your initial deposit (or at least until the crowd waiting in line to use the phone started to get ugly!

).
A long-distance call from one of these phones worked very much the same way as in America, except for the "A" and "B" buttons. The operator would look up the rates for the place called, then ask for the appropriate amount to cover the first 3 minutes. The caller would deposit the required amount, the operator counting it by listening to the gong signals as the coins dropped. As for a local call, the caller would then have to press button "A" when his party answered and the call could proceed. After 3 minutes the operator would cut back in to ask for more money and the process repeated.
Subscriber Trunk Dialing was inaugurated in December 1958, allowing telephone users to dial long-distance calls directly for the first time. It had been decided that the charging system would need to be overhauled considerably from the existing multi-fee metering for local calls plus numerous different rates for long distance. The new scheme divided the country up into more than 600 "charge groups." The typical charge group contained several exchanges and covered an area of approx. 150 sq. miles, i.e. a radius of about 6 to 7 miles from its central point (obviously the groups were not completely uniform to allow for local variations). There were notable exceptions, such as the London charge group which extended over a much larger area. You can see the legacy of these groups in many of today's area codes, as a separate code was allocated to each charge group.
Under the new charging system, all calls within one's own charge group and to adjacent charge groups were classed as local (with a few exceptions, such as where a natural feature formed a boundary between two adjacent groups). Calls to charge groups outside this local area and up to approx. 35 miles were classified as long-distance "a" rate, and calls to all points beyond that were "b" rate.
The STD scheme was designed to make use of all those existing subscriber meters. The equipment responsible for routing the call and billing it (going by the rather non-technical-sounding name of GRACE - Group Routing And Charging Equipment) sent pulses back to the meter to step it one "click" at a time at regular intervals. Local calls now became chargeable by duration, the meter stepping one unit at the start of the call and then every few minutes until the call ended. Long-distance "a" and "b" rate calls simply caused the meter to increment at more frequent intervals. The meter pulsing rate also altered depending upon the time of day, giving cheaper calls (i.e. more time per unit) at off-peak times.
This system is very significant because it formed the basis of the British telephone billing method for the next 20+ years. The amount per unit kept increasing over time, and sometimes the time allowed per unit for different rates or time-of-day changed, but it was otherwise the same.
So how did this new arrangement apply to coinphones? This is where Jim's comment about continually feeding coins into the phone comes into the picture. The new style of payphone introduced from 1959 onward (the one pictured above with the green handset and dial ring) was designed to fit in with this so-much-time-per-unit billing method. "GRACE" determined whether the call was local, "a" rate or "b" rate, just as for a call from any normal line and set the meter pulsing rate. The caller deposited the minimum fee for one unit when his party answered, and that registered at the exchange and allowed him whatever time that bought for the time-of-day and place called. When the next meter pulse arrived (which might be, say, after 3 minutes for a local call or only 40 seconds for a "b" rate call), the equipment would again apply paytone to the line to request more money. The caller could actually deposit extra coins any time during the call to build up credit, but the same principle applied; when an incoming meter pulse reduced the credit to zero, more money would be demanded. Unlike the first demand for coins when the call was answered, these requests for extra coins always allowed a little leeway to wrap up a call, i.e. when your existing coins ran out you'd hear the "beep-beep-beep-beep" of paytone for a few seconds to request more, but if you didn't insert any extra coins the paytone would disappear again and you'd get a few more seconds to finish up before the call would be disconnected. (Just about enough time to say "Oh, there's the pips; I don't have any more coins left, see you later," or something along those lines.)
I said earlier that STD started in 1958, but of course you can't change an entire national telephone network overnight. It took a good many years for STD to be applied right across the country, so both charging systems ran side by side for a long time during the conversion process. Londoners couldn't start dialing long-distance calls directly until 1961, for example, and then only in certain districts. It was the late 1970s before STD was available right out to the remote districts. And yes, that last A/B coinphone in the Scottish Highlands was still giving
untimed local calls as late as 1983/84!
Anyway, the charging system underwent a few tweaks in the 1980s, but really just minor changes. An extra "b1" rate was introduced for slightly cheaper calls to certain common places which would otherwise have been "b" rate. In later years the peak rate (which had been 9 a.m. to 1 p.m.) was dropped, leaving just day and evening rates.
By this time digital switching was starting to appear on the scene, and the old STD charging system was nearing the end of its reign. As exchanges across the country went to the new computerized "System X" switching systems from the early 1980s computer billing took over, with call charges by the second in place of the former "per unit" basis. The old local, "a" and "b" rates (the latter already having been renamed "regional" and "national") were merged into just "local" and "national" rates.
Under the old unit-based system there was no itemized billing, since all direct-dialed calls just stepped the meter. All you got was a bill showing so many units at so much per unit. The only calls which could be listed specifically were those placed via an operator. The computerized systems allowed calls to be itemized, which of course is the norm today.
The modern changes are better known. The list of tariffs is now so complex that it would be practically impossible to handle without the computer control -- There are literally
hundreds of different rates for calls to mobile phones, pagers, "personal" numbers, premium-rate numbers, 118xxx directory numbers etc. BT did effectively abolish the distinction between local and national calls just recently though.
As for current BT payphones, the good news is that for a call to a regular number anywhere within the U.K. the minimum initial deposit now lasts for 20 minutes. The bad news is that the minimum fee recently increased to 40 pence.
Now, aren't you sorry you asked?