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EDITIONS
Monday, 6 March, 2000, 13:07 GMT
Price warning for BT
Under pressure: BT is told to cut charges faster
UK telecoms giant BT could be forced to introduce annual price cuts for all its customers by industry watchdog Oftel.

Where competition is not effective, regulation will continue to provide the protection which consumers need.

Oftel
A 12-month review of BT's pricing says the current requirement that the company reduce its charges by 4.5% for the lowest 80% of residential users every year could be extended to ensure greater competition in the sector.

Oftel's announcement comes as US internet search engine AltaVista says it will be introducing fixed fee internet access, cutting out phone call charges.

The UK Chancellor, Gordon Brown, has said he is determined to increase telecoms competition to speed up the rate at which e-commerce and online services are able to grow.

BT has already agreed with Oftel to open up to rivals its "local loop" network of connections to homes and businesses by July 2001, when the current price controls expire.

'Little choice'

Oftel's report sets out a range of options, from an extension of the existing arrangement to an overhaul of the pricing system.

It said it was not convinced the telecoms industry was sufficiently competitive: "Oftel considers that for many customers there is little choice of access provider, and for lower residential users this also means little effective competition for calls.

"This in turn suggests that some form of regulation to restrain BT's retail prices for at least some consumers will be required after 2001."

The document added that prices for those customers outside the lowest 80% had not fallen "as far or as fast" as Oftel had expected when it set the current price controls.

Way forward

It said one of the options available was to extend the price capping regime to all residential and business users, although no figure for an annual reduction was given.

The review also outlined what it saw as a "radical" option of removing all current price-capping arrangements.

It would be replaced with a new structure allowing other phone companies to access BT's nationwide network at cost price and run a customer's phone line, from providing calls to calculating the billing.

Oftel said this "cost-based access" system would increase competition by allowing other telecoms companies to offer a full range of services while BT recoups only the cost of operating its "service provider" network.

The report said: "Oftel considers that the availability of a cost-based access service would be likely to intensify competition significantly at the retail level by enabling existing operators and new players to compete with BT across the full range of services."

At the same time, measures would be put in place to ensure that the lowest phone users were not hit by swingeing charges, the regulator said.

Delicate balance

Oftel said it was introducing its review of price controls at a time when it was faced with a careful balancing act in a rapidly changing industry.

David Edmonds, director general of telecommunications, said: "The ideas we are considering are consistent with our overall strategy to withdraw from regulation where competition is strong enough to provide quality, choice and value for money for consumers.

"Where competition is not effective, regulation will continue to provide the protection which consumers need."

The range of options will now go out to consultation with the phone companies before Oftel publishes its preferred system later this year.

BT response

BT said later that it welcomed Oftel's proposals to widen competition in the industry, but indicated it believed the sector was more competitive than the watchdog had made out.

A spokeswoman said: "We believe that Oftel's view of the level of competition is lagging behind the reality in the market.

"BT now has time to persuade Oftel that the market is more competitive."

She added that the options to retain or extend price capping fell short of Oftel's aim of reducing regulation but said the option of introducing cost-based access was "interesting" and should be given careful consideration.

See also:

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