Now it's your callFrequently Asked Questions
- What were the old price controls on BT, and why is Ofcom removing them?
- What will this mean for me as a phone customer?
- Does this mean the cost of line rental and the cost of calls will go down?
- What about people who live in remote areas or who have special social needs?
- What about people on low incomes?
- What would Ofcom do if prices started rising significantly?
What were the old price controls on BT, and why is Ofcom removing them?
Retail price controls limit the amount that BT can change its prices for residential and small business customers. They were first put in place by the regulator when BT was privatised in 1984.
Historically, price controls have protected consumers by preventing price increases where consumers have no choice but to pay because of a lack of cheaper alternative suppliers in the market.
The more competition there is in a market, the harder it becomes for one company to put its prices up and still hold on to its customers. So as competition grows, there is less of a need for the regulator to impose controls on retail pricing.
The phone market has changed dramatically over the last few years. The UK now has some of the cheapest phone charges in the world. Prices are falling and many new companies are competing for business.
For these reasons, and after a public consultation, Ofcom has decided not to continue the existing controls on BT. In our view, these are now past their sell-by date. The fact that more than 10 million households already use a phone company other than BT - and the fact that new companies are entering the market all the time - means that competition is working.
In fact, in the longer term we think that holding onto these price controls would risk preventing, rather than protecting, greater competition and value for consumers.
Finally, BT has formally committed to Ofcom that it will give equal treatment to all phone companies using BT's local network to connect their customers. This should mean that all companies, including BT, will be able to compete on a level playing field.
What will this mean for me as a phone customer?
The phone market is becoming increasingly competitive - many companies want your business - so it is appropriate to allow BT greater flexibility in its pricing. Given the variety of phone companies out there, it is worth looking around to see what you can find.
Does this mean the cost of line rental and the cost of calls will go down?
Traditionally, BT has charged below cost for line rental, then made its money back by charging more for calls. Other companies have then followed suit.
In future this may change. Line rental charges may increase slightly, but in return call costs are likely to continue falling. In fact, some companies are already offering unlimited phone calls as part of a package of services.
Additionally, BT has agreed it will limit charges for its basic line rental product to a certain level to avoid disadvantaging customers for whom the line rental accounts for the overwhelming majority of their phone bill.
Taking line rental and call costs together, we expect that overall consumers are likely to get more for less. However, each company will approach this differently. It is worth shopping around - and, as with anything you buy, always look at the small print.
What about people who live in remote areas or who have special social needs?
There are already rules which BT must follow to make sure that people in all parts of the UK can get a telephone line and that vulnerable groups benefit from special services and price schemes. Those rules remain in place.
What about people on low incomes?
BT says it will offer special pricing on line rental for people who spend very little on their phone services and who qualify for the BT Light User Scheme.
What would Ofcom do if prices started rising significantly?
We will review the market again in 2007. If BT were to impose significant price rises in the meantime, we would take the appropriate action to protect consumers.
But we think this is unlikely to be needed. Increasing competition and developments in technology such as making phone calls over the internet mean the overall cost of phone services are likely to keep falling for quite some time.
