Ref: 08/02
Date: 31 January 2002

Proposals to give greater flexibility in the regulation of retail fixed telephone services have been published today by Oftel.

The proposals represent a significant move from a traditional price control to an approach based on enhancing competition.

Service providers will have new opportunities to enter the market to increase competition and a safeguard price control will be set to protect consumers while competition develops.

The aim is to reduce retail call prices through increased competition and should lead to the eventual abolition of price controls.

Under the proposals:

• BT will be required to provide a cost based wholesale line rental product to new entrants on the same terms as BT’s retail business. Competitors will be able to offer customers one bill covering line rental and the cost of their calls, rather than separate bills from BT and their competitors. This will allow a range of innovative tariffs such as flat rate subscriptions for unlimited calls or the abolition of line rental with all costs recovered through call charges;

• BT’s prices for services to the lowest spending 80 per cent of customers will be pegged at their current level and not allowed to rise even with inflation. This will protect consumers in the transitional period while competition develops. The price control will be removed automatically when prices fall by a significant amount due to competitive pressures. Oftel is inviting views on the level of fall that would trigger abolition of the price control; and

• BT’s existing Light User Scheme will be maintained to reduce the line rental charge of the lowest spending customers. Even when the main price control has been removed, Oftel proposes that the bills of these customers should rise by no more than the rate of inflation.

David Edmonds, Director General of Telecommunications said;

"Oftel's price control has delivered real benefits to consumers with telephone bills now 50 per cent lower in real terms than they were in 1984.

"Competition has begun to bite. The market is changing and regulation needs to change to reflect and accelerate this process.

"Oftel’s proposals strike a new balance between the need to promote competition and protect consumers. The measures will increase competition to drive down prices and encourage innovation, but bills will be properly controlled during the transitional period.

"This gives greater freedom and flexibility to both operators and service providers to develop imaginative ways of pricing.

"We will work closely with all sections of the industry and with consumer groups to develop the new product, looking closely at customer information and marketing practice, as well as the technical details."

David Edmonds said that a continued safeguard price control remained essential while competition in the calls market develops.

"My proposal for retaining a safeguard price control is fair both to consumers and to BT.

"Consumers can be reassured that prices will not rise while competition increases, while BT can be certain that price regulation will disappear when consumers see the benefits of lower prices.

"The most vulnerable customers will continue to be protected. Even when price controls are removed, measures will remain in place so that the telephone bills of lowest spending customers will rise by no more than the rate of inflation.

"Oftel's proposals will encourage operators and service providers into the market, encourage innovation from new and existing players and give BT greater flexibility in its tariff decisions.

"The measures provide a sustainable framework to develop long-term competition in the retail market and retain the necessary controls to protect customers immediately.

"It is a substantial step of the process of the regulatory reform of the retail calls market."

The consultation period ends on 30 April. After considering responses Oftel will publish its final measures to replace the current price control of RPI minus 4.5 per cent which ends on 31 July 2002.

Notes to Editors

1. ‘Protecting consumers by promoting competition: Consultation on Oftel’s review of the fixed telephony market’ is published today. It is available on Oftel’s website at www.oftel.gov.uk/publications/pricing/2002/pcr0201.htm. Hard copies are available to the media from Oftel’s Press Office on 020-7634 8991 and to the public from the Research and Intelligence Unit on 020-7634 8761.

2. Oftel imposed a price control of RPI minus 4.5 per cent on BT in August 1997 that ran for four years until July 2001. This was then rolled over for a further year until July 2002.