Ref: 39/02

Date: 20 June 2002 

A radical package of measures to boost competition and protect consumers in the residential calls market has been announced today by Oftel.

There will be a new opportunity for companies to offer a complete residential telephony service to consumers, a continuation of controls to ensure BT’s customers’ bills do not rise, and an extension of measures to protect BT’s lowest spending customers.

Oftel’s measures are designed to boost competition and lead to the eventual abolition of price controls when the market is fully competitive.

The arrangements are:

• A new wholesale line rental product that will enable competitors to offer a complete telephone service covering line rental and calls. This could lead to a range of innovative tariffs such as flat rate subscriptions for unlimited calls or the abolition of line rental charges with all costs recovered through call charges. BT will be required to provide the line rental product to new entrants on the same terms as it does to BT’s retail business;

• A new price control on BT’s lowest spending 80 per cent of residential customers to reduce customers’ bills by the rate of inflation will be introduced in August 2002. The control will be revised to one which pegs prices to the rate of inflation once the new wholesale line rental product has been fully implemented by BT and is being used by other operators to provide services;

• The upper limit for eligibility to BT’s Light User Scheme will be extended from the lowest spending 20 per cent of customers to the lowest spending 30 per cent, making more customers eligible for a reduction in their line rental charge.

David Edmonds, Director General of Telecommunications said today:

"Although price controls have delivered significantly lower prices for consumers, competition is increasing in the domestic calls market and the time is right for a new approach.

"Oftel’s measures are designed to boost competition and protect consumers while competition develops.

"Oftel will require BT to provide a new wholesale line rental product which will enable other companies to provide a national-wide complete telephony service under one bill, offering a real alternative to BT.

"Operators made it clear that providing a single telephone bill would enable them to offer a variety of packages to consumers such as a single flat rate charge for all calls or the abolition of the line rental.

"Oftel will work closely with BT, other operators and consumer groups to ensure that a commercially viable product is introduced as smoothly as possible.

"Oftel will maintain a safeguard price control on BT while competition is increasing, and this will be relaxed when the new access product has been introduced and is being taken up in significant numbers by other operators.

"Oftel will review the market again in 2004 and the price control will be withdrawn completely if the market is truly competitive.

"Protection for the most vulnerable customers through reduced line rental will be extended by requiring BT to increase the upper limit for its Light User Scheme from the lowest spending 20 per cent of customers to the lowest spending 30 per cent.

"The Light User Scheme means vulnerable consumers will continue to be protected even when price controls have been withdrawn."

David Edmonds said that Oftel’s measures were consistent with its strategy of regulation proportionate to the level of competition.

"Where possible Oftel seeks to withdraw from regulation so that companies are free to compete with each other through innovative services and competitive prices.

"Competition in calls is increasing. Consumers are using a number of different alternatives to BT, and its market share of calls has fallen from 82 per cent to 61 per cent in the last five years.

"Price controls can now be reduced and I have decided to boost competition by giving companies a new opportunity to use BT’s network to provide telephony services to consumers.

"These measures represent a significant move away from traditional price controls and will lead to their total abolition once the market is effectively competitive."

Notes to Editors

1. Protecting consumers by promoting competition: Oftel's conclusions is published today. It is available on Oftel’s website at www.oftel.gov.uk/publications/pricing/2002/pcr0602.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. In January Oftel published its proposals for price controls when the current one expire.