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21|03|06

Ofcom proposal to deregulate BT retail phone cost controls

22 years after price controls were first imposed when the UK telecoms market was liberalised, Ofcom is today publishing proposals to deregulate retail price controls on BT line rental and calls.

Under the proposals – which are subject to public consultation – all phone companies, including BT Group plc, would be free to set their own prices and compete for customers in future. The changes would take effect from 1 August 2006.

New technology and the growth of competition have transformed phone services over the last ten years; average call prices have fallen by more than 50% since 1996. Key developments in the market include:

• Competing providers: more than 10 million households use providers other than BT for their phone calls, including more than 4 million households on cable networks [source: Ofcom Communications Market Report February 2006]
• New technology: Industry estimates suggest that there are now more than 500,000 active Voice over Internet Protocol (VoIP) users in the UK. VoIP services offer a significantly lower-cost alternative to traditional fixed-line calls. As more than 10 million households now benefit from broadband connections, VoIP services are likely to grow rapidly over time.
• Competitive local access investment: Local Loop Unbundling enables a range of providers to offer customers voice, broadband and video services over existing phone lines. By February 2006 the number of lines unbundled exceeded 300,000.

Given this, Ofcom believes it is now appropriate to consider allowing existing retail price controls to lapse as increasingly effective competition between providers continues to drive down costs to consumers. These developments are also taking place against a background of continued growth in the market for mobile services. 31% of all UK voice call minutes originated from mobile phones rather than from fixed-lines, from July to September 2005. [source: Ofcom Communications Market Report February 2006.]

The proposals include important protections for vulnerable groups as well as specific pricing assurances from BT on key services including line rental. These assurances would remain in place until the end of 2007 and would be in addition to existing statutory requirements from BT under its Universal Service obligations.

Consumer information

Ofcom’s proposal to end retail price controls would represent a significant change in the market. Subject to consultation, Ofcom would therefore run a neutral and targeted public information campaign to make consumers aware of this deregulation. Examples of potential advertisements can be found at: http://www.ofcom.org.uk/consult/condocs/retail/images/

Ofcom intends to review the retail market again during 2007. This would provide an early opportunity to assess the impact of removing regulation and a detailed update on the competitive state of the market.

Ofcom Chief Executive Stephen Carter said: “More than 20 years on, sustained competition, informed customers and the rapid growth of new technology provide the necessary environment for substantial deregulation.”

The deadline for responses is 30 May 2006 and the full consultation document is published at: http://www.ofcom.org.uk/consult/condocs/retail/

Ends.

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