BT fires new salvo in Oftel war of words

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The Independent Online

Industrial Correspondent

Sir Peter Bonfield, BT's chief executive, has warned that proposed changes in the regulation of telecommunications could damage the entire industry and hamper investment in the UK. Sir Peter also said the BT board was "not averse" to an inquiry by the Monopolies and Mergers Commission if it decided the moves by the regulator, Don Cruickshank, were bad for the company.

His comments come as Mr Cruickshank's office, Oftel, consults on proposals to clamp down on BT's rate of return in setting tough new price controls for the company. Mr Cruickshank is also seeking a sweeping new power on anti-competitive practices and is expected to publish reports on both subjects within the next few weeks.

Sir Peter said: "If the return is too low then the industry as a whole will not invest and you will not get competition. I have told him [Mr Cruickshank] that if you get the balance right, you can help innovation and and sustain competition but that if you get it wrong the whole thing can flip the other way. He's got a tough job. I've got a tough job. But it's his decision."

Sir Peter, who joined BT less than three months ago, warned that while he hopes for a realistic outcome on both the main issues at stake, the company may end up at the MMC. This would be the route taken when BT cannot agree on Oftel with changes to its licence.

In his most public statement on the debacle so far, he said: "The board has shown in the past that it is not averse to the MMC. The board has told me that they are not averse to going this time as well if they think the alternative is bad for the company and the industry." He added that many of BT's institutional shareholders were extremely concerned and had written to Oftel outlining their objections to the plans.

BT believes that its profits could be halved if Oftel pursues the pricing proposals . Under the proposals, BT's rate of return would be cut to 9-13 per cent from around 15-17 per cent at present. The company alleges that it faces increased risk in a rapidly changing market place and that, if anything, a higher return is justified.

The issue must be resolved by mid-year with a view to the introduction in 1997 of new price controls. At present the cap on BT's overall "basket" of services is inflation minus 7.5 percentage points.

On anti-competitive powers, Oftel intends to replace a range of licence conditions with a more general power allowing Mr Cruickshank and his successors to clamp down much more quickly on the company.