BT 'must give up market share'

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The Independent Online

Industrial Correspondent

The fall in telephone prices in the UK over recent years is unlikely to be sustained unless BT is forced by the regulator to give up some market share, according to National Utility Services, a leading consultancy. To achieve this, telecommunications regulation needs to be radically overhauled, the consultancy said yesterday.

The latest report from NUS concludes that BT must be forced to relinquish market power if competition is to survive and that policy so far has failed in that respect. It warns that continued tough price controls do more harm to BT's rivals than to the company itself and are bad for competition in the long term.

An NUS survey of call charges for UK business shows that bills have fallen substantially but questions whether the downward pressure on prices will continue in the long term.

Andrew Johns, NUS director, said an entirely new look at regulation was needed. In the short term, tighter price controls on BT hit rivals, who were forced to follow suit. At the same time the price-cutting helped BT to maintain market share.

Mr Johns said BT should be forced to reduce market share to perhaps as little as 40 per cent by having to maintain prices above a certain level until true competition was intoduced. A similar approach, he pointed out, was used successfully with British Gas, which was forced to publish and stick to price schedules for certain groups of business customers.

At present, BT still has a 90 per cent market share in spite of the 150 rival operators in various sections of the market. Mr Johns said the "paradoxical notion" that tighter price caps suppress competition was explained by BT's financial muscle.

"The telecoms giant can absorb lower prices dictated by price restrictions, but its rivals, who must follow suit and drop prices in order to stay competitive, are unable to sustain the reduction in revenue as their margins become eroded."

He said that in the US, the government "kept AT&T at bay" when the market opened by limiting its price cuts so that competition could flourish.

The report comes as the regulator, Don Cruickshank, prepares his decision on the future of UK telecommunications regulation. A new regime must be devised to take effect when the current price caps expire next year.

Mr Johns said: "I am amazed Oftel has so far taken this approach - focusing on price caps but not taking a look at the balance of the market as a whole."

The NUS survey of business customers shows that in the 12 months to February, international call prices fell by 21 per cent. National call charges dropped by 10 per cent, making the UK the cheapest place of 10 countries surveyed in which to make a long distance call.

Local call charges dropped by 11 per cent but Britain still remains around the middle of the league.

Globally, American customers saw the biggest fall in international call charges with a drop of nearly 36 per cent because of increasing competition. In Germany prices fell by 30 per cent while in Sweden and Belgium prices slid by 23.4 per cent and 15 per cent respectively."