The discounts, which take effect from 1 February, increase with the amount customers spend. Unlike existing volume discount schemes, people are not asked for a fixed quarterly fee in order to participate.
The cuts apply to companies that are directly connected to Mercury's network rather than through a BT link. Virtually no small businesses or domestic customers have a direct Mercury link and so cannot benefit from the price cuts.
Mercury said the scheme would do away with most of its existing frequent-user programmes, reducing complexity for customers. The company also promises to provide clear comparisons with any price packages on offer from BT.
The Telecommunications Users Association welcomed the abolition of fixed charges in return for discounts, but said Mercury may not always be the cheaper option, even with the new cuts.
A spokeswoman for the TUA said: 'We are carrying out further analysis of the prices on offer and users need to be clear that Mercury may be dearer depending on the type and duration of the call.' She said BT was expected to react quickly to the Mercury challenge.
BT has recently announced price cuts worth pounds 180m, mainly in the form of cheap national calls at weekends. It has to announce a further pounds 320m in cuts by the beginning of November in order to keep within its regulatory controls.
BT has several discount schemes for business users, all of which involve quarterly fixed payments varying between pounds 40 and pounds 1,000. Oftel, the industry regulator, does not allow BT to offer volume discounts without fixed fees because of its dominant position in the marketplace.
The TUA said the plethora of different schemes introduced by BT and Mercury over the past year or two have made it increasingly difficult for customers to decide which to choose. The latest Mercury package offers discounts of 12.5 per cent for companies with monthly call bills of between pounds 33 and pounds 240, rising in stages to 25 per cent for those with bills of more than pounds 20,000.
A spokesman for BT said: 'We are not surprised that Mercury has responded in this way. We will be making further announcements next month.' BT is expected to announce further schemes for business customers as well as a service that offers discounts for calls made to a number of friends and relatives designated by customers.
Mercury is also rumoured to be planning changes to the charges for using One-2-One. At the launch of the service last September, the company surprised the industry by introducing free and unlimited off- peak calls in London and surrounding areas in return for a monthly subscription of pounds 12.50 excluding VAT. The uptake was so great that Mercury suffered an embarrassing shortage of telephones, which it is only now thought to have overcome.
There has been speculation that the company may be forced to limit the free calls in some way as they have attracted so many more users than anticipated. It is thought that Mercury now has about 30,000 to 35,000 subscribers - numbers that the company refuses to confirm.
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