BT discounts on calls may have breached licence: Share sale prospectus warns that regulation is hitting profits - Private investors to save 10p on first instalment

OFTEL has warned British Telecom that it may have breached its licence in offering special discount deals on telephone calls.

The latest salvo from the watchdog emerged as a last-minute addition to the prospectus for the pounds 5bn sale of the Government's remaining shares in BT, launched yesterday by Kenneth Clarke, the Chancellor of the Exchequer.

Don Cruickshank, the Director General of Oftel, has demanded justification of the special deals offered by BT, which have included low-cost calls on Sundays and special summertime rates on some calls to Europe and North America.

He was concerned that BT, in its transfer pricing calculations, may have charged itself less for delivering the discounted calls than it charged other operators that use its lines.

If that was the case, BT could be barred from future cut-price schemes, an important part of its effort to fend off increasing competition from Mercury and cable television firms. According to the prospectus: 'BT views this development with concern and is considering its response.'

The prospectus also contained a series of warnings by BT concerning the impact of increasing regulation and growing competition. The company said regulation continued to hit revenues and operating profit.

Coinciding with the prospectus launch, the Government announced a discount of 10p on the first payment instalment for UK private investors. Small investors will pay 150p compared with 160p for institutions. Those who have registered with the Share Information Office or share shops - run by banks, building societies and stockbrokers - will also receive a 10p discount on the second and third instalment.

An alternative to the later discounts is one share for every 15 shares held for three years. The final price will be set on 16 July by institutions bidding for shares. Both the discounts and bonus options have been scaled back compared with the last sale of BT shares when three discounts of 15p were offered.

Mr Clarke said that at least half of the shares in the sale would be reserved for the UK public offer, although this could be increased to two- thirds if demand was high.

A total of 4.7 million potential small investors have so far registered for shares, of which 2.4 million are existing shareholders and employees. About 1.4 million people have registered with share shops and will get preference in the share allocation. The deadline for registration for shares is Friday and those who have registered will receive a prospectus and application form for shares early next week. The public offer closes at 10am on 14 July, although individual share shops may have their own earlier deadlines.

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