The next set of controls on BT's retail prices may well be the last. The UK telecoms market is genuinely at a turning point in the development of competition. At some stage over the next few years, effective competition will be delivering Oftel's goal of providing the best possible deal for the customer in terms of quality, choice, and value for money. The questions are: When will that point come? How will we know? What form do price controls take in the meantime?
In the short term, price control will continue to be needed to protect BT's customers. BT's retail business is still a very powerful player. Retail price controls apply to BT's core telecoms business. This accounts for £8.2 billion of BT Group's £13.9 billion revenue and is very profitable. It generates operating profits of £2.9 billion, operating cashflow of £4.2 billion, and reports a 24% return on capital employed.
But competition is eating into BT's market position. There won't be effective competition before August 1997, when the new controls must be in place. But it looks more likely to have arrived by 2001, when a 4-year price cap would end. I see three options for the next retail price control:
On the basis of the currently controlled services, X is likely to be in the range of 5-9% although this is very sensitive to forecasts, especially of market growth.
Oftel's proposals for price control of BT's Network business will continue to drive improved efficiency at the network level. An X in the range of 3-6% is likely. This will be very important for other operators whose interconnection charges are a major component of their costs.
Behind the headline Xs there are other proposals in this document which are significantly deregulatory - removal of sub-caps, pricing flexibilities. But allowing BT this greater freedom depends on Oftel having effective powers to ensure fair trading. The proposals here assume that there will be an anti-competitive practices provision in BT's licence on the lines currently being discussed.
These issues are crucial both to providing protection for customers and to promoting choice. Telecoms is a significant part of the UK economy. Prices for telecoms services affect everyone. Public hearings are to be held around the country in the next few weeks (details on page 3). We want to hear your views.
DON CRUICKSHANK
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