BT brings City into Oftel battle

MARY FAGAN

Industrial Correspondent

BT is preparing for battle with its watchdog, Oftel, with briefings for City institutions on the effects of proposed new price controls and other regulatory change.

The company has contacted or visited its top 20 to 30 investors over the last few weeks in what one source called an "educational tour". The move emerges only days after Sir Peter Bonfield, BT's new chief executive, promised a "roller coaster" year on the regulatory and competition fronts.

Relations between BT and Don Cruickshank, director general of Oftel, have reached an all time low. Some in BT believe that Mr Cruickshank is intent on breaking the company up. One source said: "Mr Cruickshank is not in favour of competition. He is in favour of BT's competitors."

The main subject of BT's City briefings have been the implications of the lower rate of return that Mr Cruickshank is expected to use in setting new price controls. There have also been discussions over his proposals to take on "sweeping" new anti-competitive powers.

BT must reach agreement with the regulator on both counts or face a reference to the Monopolies and Mergers Commission.

The proposals by Mr Cruickshank to take on a more general competition power - which he believes is vital for the development of the industry - is the most pressing issue for BT. The company, which is incensed at the plan, must respond by 2 February.

The changes to the price controls must be agreed around the middle of the year or, again, the matter might be referred to the MMC.There is a view that an MMC reference on some grounds, for which Mr Cruickshank would set the terms, is becoming almost inevitable. In launching his consultation on the price controls last month. Mr Cruickshank warned that he expects sharp efficiency gains from the company, which has shed 100,000 jobs over the last four years.

The paper issued at the time made it clear that in calculating the exact controls, he will use a lower rate of return than the 15 per cent assumed today. One analyst said the proposals would be "nasty" for BT, adding: "Oftel is saying BT's profit levels can be lower than they have ever said before."

BT emphatically denies that it is lobbying against Oftel. A spokesman for the watchdog has said that Mr Cruickshank is doing his duty as he sees fit and would continue to do so.

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