BT ordered to pay bulk of pounds 220m switching costs

Across the wire: Squabble with regulator follows MMC's ruling on customers who change phone systems
BT was yesterday told to pay the bulk of the pounds 220m of costs when customers switch to its competitors but wish to keep their existing telephone numbers.

The decision by the Monopolies and Mergers Commission will cost BT pounds 150m and the cable companies and other competitors pounds 60m over the next five years.

But its real significance is that it could herald a sharply increased flight of customers away from the telecoms giant.

The decision led to a day of bitter squabbling between BT and Don Cruickshank, the telecoms regulator, over which side had won an argument about who pays for so-called "number portability."

Each side also claimed that the precedents set by the MMC's decision foretold victory in important regulatory battles to come, including a key argument over interconnection charges in the telephone network, which is expected to be sent to the MMC.

The City appeared marginally more sympathetic to the BT view and marked the shares up 5.5p to 348.5p, on the grounds that the situation had been clarified by the MMC.

Ian Morfett, director of network services and pricing at BT, agreed that the current 50,000 customers lost each month to cable companies would rise but he rejected suggestions that they would double.

The first switches will be made under the new system from next spring and it will be in full operation in 1997.

Cable companies will have to pay BT pounds 8 to pounds 12 every time they win a customer and BT will be entitled to charge the same if it woos them back.

But the biggest cost for BT will be in financing the system changes that make portability possible. Industry experts expect the competing sides to absorb most or all of the cost in their general overheads, rather than add it directly to the bills of new customers won from other companies.

Mr Cruickshank has long argued that number portability is essential to increasing competition in telecommunications. Both he and the cable industry believe BT has been dragging its heels.

He said he was pleased that the MMC had endorsed his view that number portability was in the public interest and that BT should not be able to recover all the costs from other operators, as its licence provided at present.

Mr Cruickshank added: "The MMC's detailed recommendation of the allocation of costs between BT and other operators is very close to my original proposal, which would have resulted in a 75:25 split of BT's total portability costs over the next five years."

He said the MMC had recommended a 70:30 split and he alleged that BT's best offer to date would have resulted in a split the other way round, of 15:85 in its favour.

He further claimed that BT's estimates for the total cost of portability had fallen considerably during the course of the MMC inquiry from pounds 557m to pounds 220m.

Mr Morfett said he failed to recognise any of the numbers put forward by Mr Cruickshank to back his claim that the MMC had backed the regulator's line, including the proposed 75:25 split of the costs.

Suggesting that the regulator had in fact been defeated in a campaign to get BT to pay everything, BT said: "Other telephone companies will now have to pay a share of the cost of implementing number portability. BT will be up to pounds 60m better off." Dr Alan Rudge, BT managing director, also said: "Our decision to push for an MMC reference has been vindicated" and he denied that BT had ever opposed number portability.

The Cable Communications Association reacted with delight to the MMC report, saying: "They knew they would ultimately lose but they have tried as long as possible to postpone the evil day."

Mercury Communications said the report was an important step towards effective competition in the UK telecoms market.

Comment, page 21