BT's rivals pile on the pressure ahead of the great tariff revamp

Move by former monopoly to steal a march on competition runs into trouble

On Thursday nine million BT customers will start enjoying cheaper phone calls thanks to a decision by the former state monopoly to abolish its standard rate tariff and move everyone on to discount rates.

However, rivals say that even after the switch BT customers are still going to be wasting money, with one estimate putting the cost to consumers of staying with BT at £1bn.

Any hope that BT may have had of stealing the thunder of its cheaper rivals, by moving a vast swathe of its customer base on to lower tariffs, has been scotched.

New research shows that at least nine of BT's fixed-line rivals have changed their price tariffs since April, when BT first announced it would abolish its standard charges. These include One.Tel, part of Centrica; TalkTalk, part of Carphone Warehouse; and Sky Talk, part of BSkyB.

Although its rivals were left with little choice but to react to BT's initiative, these companies are relishing the challenge and see the price war as having only just begun. After an attempt failed to derail BT's changes by appealing to the regulator, the competition has clearly decided it is time for all-out war.

Another four fixed-line suppliers - Telewest, Just Dial, Tiscali and Equitalk - are poised to launch lower prices at the beginning of July.

BT thinks it has "really rattled" the opposition with its new pricing tariffs, according to Gavin Patterson, the group managing director of BT Consumer and Ventures.

"They are all after BT's customers. When BT becomes more competitive and has a stronger proposition then they need to react," Mr Patterson said.

The company decided to move nine million customers, still languishing on its costly standard call rates, on to its BT Together Option 1 discount rate in April. The changes will take effect on Thursday.

Certainly BT is enjoying a more bullish mood in the City, with its shares trading at their highest level since last July. City dealers marked the BT price up more than 2 per cent yesterday as hopes of a revenue recovery swirled round investment houses.

Not surprisingly, such BT bravado does not go down too well with its rivals.

Ian El-Mokadem, One.Tel's managing director, said: "It's astounding that so many people continue to waste money by sticking with BT despite it being the most expensive telecoms provider in the home telephony market."

One.Tel has been one of BT's fiercest rivals. It is typical of the so-called carrier pre-select (CPS) telecoms suppliers that have entered the market since BT was privatised and opened up to competition. The tables show that the Centrica-owned telecoms business is cheaper than all its rivals for average and medium users, and is still the second cheapest for heavy users of the phone.

It reckons that if all BT's 22 million residential customers switched to its service, they would each save an average of £42 a year. This adds up to close to £1bn that consumers are allegedly wasting by remaining with BT.

BT is not taking the criticism lying down. Mr Patterson said: "One of the great benefits for customers is that all our rivals will now have to make realistic, like-for-like price comparisons rather than trotting out comparisons versus our more expensive standard rates. We expect customers to be easily able to judge now how much BT is cheaper than its cable rivals, or to see exactly how small the gap is between us and the few rivals who slightly undercut us."

The reaction from the cable companies - Telewest and NTL - has been somewhat muted so far but NTL is expected to launch a broadside against BT this week.

However, the invective between the telecoms rivals is likely to ratchet up as the fight for customers moves into new areas. Analysts are now predicting the opening of a new front in the telecoms price war: the cost of calling a mobile from a landline.

The cost of making a call to a mobile phone from a fixed line has been an area of contention for some time.

Thanks to intervention from Ofcom, the industry regulator, those charges are expected to fall. As a result, fixed-line operators, including BT, will be given a new stick with which to beat each other, according to experts. The result for consumers should be even lower telephone bills.

At the moment, it costs between 15p a minute to call O2 and 18.73p a minute to call T-Mobile from a landline. The charges will fall because Ofcom has told mobile operators their so-called "termination" charges made to fixed-line operators must come down. Those fixed-line operators who pass the savings on will be in a position to compete even more keenly for new customers.

Jon Miller, director of uSwitch.com, which analyses telephone charges, said: "It is five to six times more expensive to call a mobile from a landline than it is to make a local or national call. Ofcom is forcing the mobile operators to look at their termination charges.

"We predict the cost of calling mobiles will be the next battleground as a result of the decrease in call termination charges imposed by Ofcom.

"If consumers are making a lot of international calls then quite often they are aware of the competition in the market place. With mobile calls, if you think about the way most people behave, then it is the kind of call from a landline that most people are edgy about on the costs.

"Different landline suppliers will be able to offer different discounts to customers on calls to mobiles depending on their arrangements with the different network operators. It depends on how they package up these costs but it should start happening in the next few months."

BT's Mr Patterson said: "It will be an area where a number of companies focus. The prices on fixed line to fixed line calls are now so competitive that operators are going to look elsewhere for ways of differentiating their proposition."

Anyway, attention for the rest of this week will be focused on BT's new charging tariffs and the impact they will have on the market. Some consumer groups are far from convinced that BT is being fair to everyone, however.

Mr Miller said: "It's encouraging to see that in most cases BT customers will see bills decrease, with average users seeing price cuts of approximately £24 per year. However, on the downside, these changes will have a detrimental impact on more than 3 million carrier pre-select customers, who are billed by BT for their line rental but pay another provider for their calls; these customers will see their annual bills rise by £12 a year."

Even if you are a BT customer under the new tariffs, Mr Miller said, line rentals are still high.

"While the cost of calling may be coming down, the fact remains that consumers will still be charged a minimum £31.50 a quarter before they've even made a call. BT is still not the cheapest supplier in the market, witching is easy and you can make significant savings by shopping around," he said.