BT resists Oftel over price caps: Hopes of a quick agreement recede after relations with regulator reach a new low

CITY hopes that BT will reach speedy agreement with Oftel over new price controls are set to be dashed.

Relations between the regulator and BT have reached a new low and there are signs the company may opt for a referral to the Monopolies and Mergers Commission rather than accept Oftel's plans, which could reduce its profits by pounds 100m a year.

The City expected the company to agree in principle to Oftel's proposals this week, so that BT could make an announcement at its annual general meeting on 30 July.

However, the proposals are not likely to be considered by the board, led by Iain Vallance, chairman, until shortly before the agm. Moreover, BT and Oftel had a meeting on Thursday that is understood to have been acrimonious. BT is already late with its response, which was officially due at the end of June.

Oftel has made it clear that the main points of its package are not up for negotiation in spite of the company's attempts to reach some sort of compromise.

The regulator plans to cap BT's prices for a basket of basic services to inflation minus 7.5 percentage points instead of 6.25 points today.

It is also limiting the increase in line rental charges to inflation plus 2 percentage points instead of the inflation plus 8 wanted by BT.

Equally onerous, it is forcing the company to exclude from the basic basket the bulk discounts offered to large users. This means that BT's price cap is more to the benefit of smaller customers and that it has less flexibility in competing with Mercury for large clients.

Analysts said that offering these discounts could shave a further pounds 270m from BT's profits.

Oftel sources said that if the company tried to force any big departure from the proposals, the regulator would 'need to get an MMC reference rolling on prices' before the end of July. The new price formula has to be in place by 30 July next year.

BT is particularly angry that Oftel wants separate and transparent accounting for its local and long-distance businesses. Bill Wigglesworth, acting director-general of Oftel, said this is vital if other telephone companies are to compete on equal terms.

But a senior BT executive said the system, under which everyone would know what BT charges for transferring calls from one part of the network to another, would be extremely difficult to implement.

BT's stance is that it is not against fair and transparent pricing, but that introducing a separate accounting structure for local and international operations and retail and wholesale services would be expensive. Ultimately the customer would have to pay, a BT source said.

Mr Wigglesworth has been at the head of Oftel since Sir Bryan Carsberg left in June to join the Office of Fair Trading. Oftel's new regulatory package was Sir Bryan's last act, but it is up to Mr Wigglesworth to force it through. He is a candidate to succeed Sir Bryan on a permanent basis.

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