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27 October 2000

Proposals to guarantee that consumers continue to benefit from falling prices in BT’s calls market have been published today by Oftel.

In a consultation document on BT price controls, Oftel proposes to:

• retain retail price controls on BT of RPI minus 4.5 per cent until July 2002 – a move which could save BT’s residential customers about £270 million.

• retain price caps on BT’s interconnection services, which allow other operators to connect to BT’s network and to convey calls over it. Price caps have already reduced BT’s interconnection charges by about 20 per cent in real terms over the past 3 years. These further savings will help to ensure that consumers benefit from lower retail prices, and retain the UK’s position of having amongst the lowest interconnection prices in the world.

• introduce further measures if competition does not increase significantly over the coming year, which could include allowing service providers without their own networks to use BT’s network at a cost-based rate – significantly cheaper than they currently pay.

Commenting on the proposals, David Edmonds, Director General of Oftel said today:

"BT has argued that price controls should 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 controls of RPI minus 4.5 per cent for a further year. This could save BT’s residential customers about £270 million over the year.

"Oftel proposes to introduce tough price controls on interconnection charges – of up to RPI minus 11.5 per cent – until 2005, which should result in other operators offering lower prices if they pass on the savings to their customers."

David Edmonds said consumers had benefited from lower prices due to price controls and increased competition, but he did not rule out tougher price controls on BT if prices did not fall further.

"Competition continues to increase across all sectors of the telecoms market.

"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 access suppliers and cable operators.

"The introduction of carrier pre-selection from January 2001, which will enable consumers to use alternative carriers for their voice calls without dialling additional digits, is also likely to have a significant effect on competition over the next year.

"Oftel will assess the impact of carrier pre-selection and any further increased competition before reaching final decisions next year on the long-term future of retail price controls.

"If increased competition does not result in lower prices, I will introduce further measures to ensure that this happens.

"This could be by further price controls or by measures to increase competitive pressures 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."

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

Notes to editors

1. Price Control Review: A consultative document issued by the Director General of Telecommunications setting out proposals for future retail price and network charge controls is available from Oftel’s website at www.oftel.gov.uk/pricing/pcr1000.htm Copies are also available to the media from Oftel’s Press Office on 020 7634 8991 or to the public from Oftel’s Research and Intelligence Unit on 020 7634 8761. A Welsh language summary of the document is also available on request.

2. The current set of retail price controls covers residential line rental and the prices of local, national and international calls and calls to operator assistance. It is based on the spending patterns of the 80% of residential customers with the lowest bills. Small business customers are also protected by an assurance that a package for them will be available with call prices at least as good as those for residential customers. BT’s network business, which sells wholesale to other operators, comes under the network charge control regime.

3. Oftel’s first consultation document to assess the level of competition in the residential market – Price Control Review: Future developments in the competitiveness of the UK telecommunications markets – was published on 7 July 1999. As part of the consultation process, Oftel held a number of regional public meetings to give the public the opportunity to give their views on the residential calls market. A further consultation document was published on 6 March 2000. Both documents are available from Oftel’s website at www.oftel.gov.uk.

4. Changes in the average bill are estimated by considering the average revenue per line, after adjusting changes in calling patterns. This is calculated by summing the average revenue per line generated by specific call types and fixed charges. The mix of call types is fixed at a base year. While there have been significant price falls for all call types, increases in the volume of calls made, particularly to mobile phones and Internet Service Providers, together with increases in line rental, means that the average bill has increased slightly over the price control period. For more information see the Oftel Statistical note The telephone bill of a typical residential customer which can be found on Oftel’s website at www.oftel.gov.uk/pricing/tycu0500.htm.

5. "a move which could save BT’s residential customers about £270 million." This is a projected reduction in real expenditure by residential customers between 2001 and 2002 on existing retail basket services.

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