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Last Updated: Tuesday, 21 March 2006, 14:30 GMT
Controls on BT prices set for axe
Woman ironing while talking on phone
BT says the plans would lead to lower bills for domestic customers
Telecoms giant BT could be free to set its own prices for residential UK phone lines and calls this summer, under plans put forward by regulator Ofcom.

Increasing competition had driven down prices, the regulator said.

More than 10 million households now use telecoms firms other than BT for phone calls, including more than 4 million on cable networks, Ofcom added.

The changes, which are expected to take place on 1 August, will end 22 years of controls on BT prices.

Growing choice

Continued growth in the mobile phone market - with almost a third of all calls originating from mobiles - had also led to the proposal, Ofcom said.

The watchdog added that prices had fallen by more than 50% since 1996 as growing numbers of companies began to offer telecom services.

"More than 20 years on, sustained competition, informed customers and the rapid growth of new technology provide the necessary environment for substantial deregulation," Ofcom chief executive Stephen Carter said.

It is a positive element for BT, but on the other hand it is facing tougher competition
Stephano Nicoletti, Ovum

Under the proposals, which are subject to public consultation, all phone companies would be free to set their own prices for home phone calls.

However, the watchdog pledged to keep safeguards in place for "vulnerable groups".

It added that the current proposals would only affect prices and not other key areas such as BT's promise to provide a standard phone line service in remote areas.

BT welcomed the proposals, saying they were likely to result in lower bills.

"BT has already saved its customers more than 1bn over the past decade and this trend looks set to continue," it said.

Price comparison website uSwitch added BT would now be able to match or undercut the price of any competitor which could lead to a "price war" in the home phone market.

'Increased freedom'

Stephano Nicoletti, analyst at Ovum, said the move would give BT greater freedom on pricing.

"It is a positive element for BT, but on the other hand it is facing tougher competition - as opposed to most of its European counterparts," he said.

In the past the controls had been in place largely to prevent BT cutting prices and so putting rival companies out of business.

Mr Nicoletti added that the proposals were also Ofcom's way of "fulfilling its side of the bargain" to loosen its grip on domestic prices in return for allowing competitors greater access to its network through the creation of its Open Reach unit.

The move, he said, would also send a powerful message to the European Union at a time when it is reviewing its regulatory framework of telecom firms.

"There's already a lot of controls in the rest of Europe," he said. "This could lead to fresh thinking for Brussels: more competition at the retail level, rather than retaining controls."

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