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Last Updated: Tuesday, 24 January 2006, 18:36 GMT
Competition fears hit Yell shares
Yell logo
Yell is the dominant directory service in the UK
Shares in directory group Yell fell by almost 4% as competition watchdogs said it was so dominant in the market that its rivals were struggling to compete.

The Competition Commission said it had not yet reached a decision on whether to intervene in the directories market, but was assessing if action was needed.

Yell said that the marketplace was "increasingly competitive" and that it would contest enforced regulation.

However, many city analysts now believe there will be intervention.

The commission said Yell's "strong position" could lead to advertisers being forced to pay higher prices if a current price cap, that has been in place since 2001, were removed.

Although the watchdog's final report is not due until August, Seymour Pierce analyst Charles Peacock said: "At this stage, it looks unlikely that there will be a removal of regulation or possibly even a relaxation in the price cap."

Shares in Yell were down 20p, or 3.79%, at 507.25p by the close of trade on the London Stock Exchange on Tuesday.

'Network effect'

In April last year, the Office of Fair Trading (OFT) asked the Competition Commission to investigate concerns that competition in the classified directories market was not working.

We find it difficult to recognise the market in which we compete from the one described in the Commission's 'emerging thinking'
John Condron, Yell chief executive

In a "latest thinking" document, the commission said Yell remained "by far the largest provider in a highly concentrated market", despite the presence of Thomson Local Directories and BT.

"It benefits from a network effect, which arises when increasing numbers of advertisements in a directory attract an increasing number of users, which in turn attract more advertisers," it said.

"The network effect strengthens the position of the existing providers and operates as a barrier to entry."

'Competition increased'

But Yell hit back and said that it had cut its prices by an average of close to 30%, "substantially more than the regulation required", while also increasing its customer numbers by more than 50%.

"We find it difficult to recognise the market in which we compete from the one described in the Commission's 'emerging thinking'," Yell chief executive John Condron said.

"Since the last review, competition has increased and diversified markedly. There has been major new entry into the printed directory space, notably BT, and exponential growth in internet usage."

He said this competition had led to it improving its efficiency, customer service and customer value for money.

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