Ref:  09/01
Date: 1 February 2001

Oftel today confirmed that it will continue with controls on BT’s residential calls prices.

Oftel will extend the existing price controls on BT’s residential prices because BT continues to have market power in the provision of telephony services to residential customers, although the extent of competition is increasing.

The price controls will come into force in August 2001 when the current controls expire and will last for one year. The controls are estimated to save consumers £270m over the year.

Oftel will carry out a review on the level of competition in the calls market in order to consider whether retail price controls will be needed beyond 2002.

Oftel has also confirmed today that it will continue with price controls on BT’s wholesale network charges for operators that interconnect with BT’s network.

The charge controls will range from RPI minus 13 per cent to RPI minus 7.5 per cent to reflect the profitability and scope for cost reductions for each interconnection service. The controls will be in place for four years from October 2001.

The measures are set out in Oftel’s statement ‘Proposals for Network Charge and Retail Price Controls from 2001’ published today. The statement includes draft licence modifications to bring the proposals into effect.

Announcing the continuation of price controls, David Edmonds Director General of Telecommunications said today:

"Oftel’s price control proposals represent a firm and fair settlement for BT, its customers and competitors. The controls will maintain stability in the market and enable operators to develop business plans based upon a clear understanding of future interconnection charges.

"Oftel’s proposals to extend price controls covering BT’s residential customers were supported by consumer and industry groups.

"BT had argued for all formal price controls to be removed but BT continues to have market power in the provision of services to residential customers. Oftel believes price controls are still needed to protect consumers.

"Oftel will carry out a review of the calls market to assess the impact of carrier pre-selection, indirect access, local loop unbundling and mobile substitution. As competition increases and prices fall, the case for retail price controls diminishes."

David Edmonds said that Oftel will also introduce a range of new network charge controls for different BT interconnection services.

"BT remains dominant in the provision of a number of interconnection services and controls on the charges for these services continues to be necessary. The network charge controls will run from October 2001 for four years.

"The proposals mean that consumers could have lower prices for services such as unmetered Internet access if operators pass on the savings from BT’s lower interconnection charges."

David Edmonds said that Oftel’s strategy is to withdraw from unnecessary formal regulation when consumer benefit from effective competition.

"Oftel’s price controls will protect consumers while competition continues to develop. Once competition is effective Oftel can withdraw from controlling BT’s prices.

"That is why Oftel will look closely at developments in the retail telephony markets over the coming year, and will seek to withdraw from price controls if competition is effective in delivering the best deal for consumers.

"Oftel is consulting on the proposed modification to BT’s licence and will then seek BT’s consent to insert the modification into its licence in March."

The retail price control will focus on the services used by the lowest spending 80 per cent of BT’s residential customers and will be set at RPI minus 4.5 per cent. The four network charge controls are – tandem layer basket (RPI minus 13 per cent); call origination and termination (RPI minus 10 per cent); interconnect specific (RPI minus 8.25 per cent); and FRIACO (RPI minus 7.5 per cent).

Notes to Editors

1 Oftel’s statement ‘Proposals for Network Charge and Retail Price Controls from 2001’ is available from Oftel’s website at www.oftel.gov.uk. Hard copies are available to the media from the Press Office by calling 020-7634 8991 to the public from the Research & Intelligence Unit on 020-7634 8761.

2. Oftel’s consultation document on BT price controls ‘Price Control Review: A consultative document issued by the Director General of Telecommunications setting out proposals for future retail price and network charge controls’ was published by Oftel on 27 October 2000.

3. The retail price controls of RPI minus 4.5 per cent is estimated to result in savings for residential customers of around £270M for the year July 2001- July 2002. This is a projected reduction in real expenditure by all residential customers on existing retail basket services. It is based on the assumption that, in the absence of the control, BT’s prices would increase by the general rate of inflation.

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