BT and Oftel to lock horns over local calls

A new battle between BT and the telecoms regulator Oftel is about to break out over the expected growth in the market for local telephone calls. According to BT's own estimates growth in local calls will slow to 2 per cent a year in the five years from 1997 from a post-war average of 5 per cent.

The projection falls far short of that used by Oftel, the industry watchdog, in setting new price controls and will be used by BT in its increasingly bitter battle against the regulator.

BT says that assumptions over market growth are the "most marked" stumbling block in reaching agreement with Oftel. Unless the company accepts Oftel's decision on future price caps it will end up in the hands of the Monopolies and Mergers Commission.

The company also launched a fresh attack on plans by Don Cruickshank, director general of Oftel, to assume wider new powers against anti-competitive practices.

One source said: "You run the risk of the director general becoming the dictator general."

Oftel believes that local call volumes could grow by up to 7 per cent. However, BT argues that the main growth in the marketplace will come from special services such as 0800 numbers and call diversion which fall outside the scope of the price cap.

The company also said that with 92 per cent of the population linked to the network it would become increasingly difficult to match historic growth without a drastic change in the way people used the telephone.

The BT source said: "We are getting close to saturation point on the network and with increasing competition from mobile telephony and cable it will become an uphill struggle to grow the level of calls. We cannot find a good explanation as to Oftel's view on what the market can achieve."

Oftel said that the estimates would vary according to the type of analysis used, adding: "It could well be that BT is not comparing like with like."

The company is also gearing up for battle on Oftel's view of its potential efficiency gains.

BT, which has shed more than 100,000 jobs over the past four years, claims that the watchdog's target of 4.5 per cent improvement per year is "unrealistic and probably beyond our capabilities".

According to BT insiders: "We do not feel confident that there is a tremendous willingness on the part of Oftel to compromise. The ability to go to the MMC is the only real comfort we have that he might be responsible in his decision."

Mr Cruickshank is proposing to limit price changes to between five and nine percentage points less than inflation compared with "RPI minus 7.5" today.

BT's view that the regulator is being unacceptably tough is not shared by some City analysts, who believe that Oftel has softened its approach over recent months. There is an assumption that the outcome will be "steady as you go", with Oftel plumping for the middle of its proposed range. According to most observers, BT could live fairly comfortably with the continuation of the current regime.

The pricing changes must be resolved around the middle of the year and go hand in hand with the plans for sweeping powers against market abuse to which BT vehemently objects.

The company's grumble is that there is insufficient right of appeal in the Oftel proposal. It is also concerned that there are no binding guidelines setting out what will be anti-competitive and that it will therefore give Mr Cruickshank and his successors a vey wide discretionary power. The watchdog is likely to bend to some of these concerns by making the changes according to European competition law. But Mr Cruickshank is so far unpersuaded that BT needs an independent appeals body. He has also made it clear that failure to agree on the competition issue would lead to an all-encompassing MMC reference.

Profile, page 17

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