Oftel moves to slash phone bills

UK telecoms watchdog Oftel has promised to take firm action against BT to cut phone charges for consumers, but the telco said tougher controls are not necessary.

Oftel has said that it will continue to place price controls on BT, which could help cut customers' phone bills by a total of £270m a year and should lead to other operators offering lower call prices.

In a consultation document on BT's price controls, the regulator said it would continue to require the telco to adjust residential prices by the retail price inflation (RPI) of minus 4.5 per cent until July 2002. It has also proposed tougher controls on the prices BT charges rivals for connecting to its network.

David Edmonds, Oftel's director general, said: "BT has argued that price controls be removed because of the extent of retail competition. Oftel does not believe that this can be justified at this time. BT's call prices can still fall further, and Oftel has decided to protect consumers by continuing retail price control."

"Oftel estimates the average bill for a residential consumer has reduced by about 20 per cent in real terms over the past three years due to price controls on BT and greater competition from indirect suppliers and cable operators," he added.

The regulator said it will introduce tough price controls on interconnection charges - of up to RPI minus 11.5 per cent - until 2005. These controls should result in other operators offering "lower prices if they pass on the savings to their customers", said Oftel.

BT has said it is disappointed with Oftel's decision and believes there is already competition in the market. It will argue that pricing controls should instead be relaxed from next year.

A BT spokesman said: "We have been working closely with Oftel and are quite frankly disappointed with its decision. Oftel accepts that competition is growing and we feel that formal price controls should be relaxed quite substantially."

"We would definitely say that Oftel is underestimating the element of competition in the UK marketplace and should actually be reducing controls now. We have six weeks to make a formal reply and will raise these points," the spokesman added.

But Oftel, which has come under fire in recent weeks for failing to ensure there is competition in the UK telecoms market, has promised to introduce further measures if competition does not increase significantly over the coming year.

"This could be by further price controls or by measures to increase competitive measures on BT, such as forcing BT to allow operators without their own networks to use its network at charges based on BT's costs, rather than charges based on BT's retail prices as at present," said Edmonds.

The current retail price controls on BT are due to end in July 2001 and network charge controls are set to finish in September 2001. A final statement on these proposals will be published in January 2001.