After 22 years, Ofcom finally scraps BT price controls

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Fears that line rental charges could increase for 10.7 million UK households have been raised after the telecoms regulator Ofcom ended its control of BT's domestic prices.

The prices that BT charges for line rental and phone calls has been regulated since the company was privatised 22 years ago. Intermittently, those price caps have been relaxed. Ofcom has now decided that competition in the UK market is sufficient that BT can be free to fight against its domestic rivals, including the likes of Carphone Warehouse and NTL, without unfairly benefiting from its ownership of the UK's largest fixed-line telecoms network.

Although the news was greeted as positive for BT, it also led to concerns that the company may look to raise its line rental charges to offset pressure at the voice tariff level.

Chris Williams, a product manager at the price comparison service uSwitch, said: "We urge BT to use this opportunity to reward their 16 million loyal customers by lowering their bills. Unfortunately, it is possible that one of their first moves will be to increase line rental, and if this is the case we just hope that other providers do not follow suit."

Ian Livingston, the head of BT Retail, welcomed the lifting of regulation over its retail operations but admitted the company is reviewing its pricing structure. He said: "The UK has enjoyed one of the most competitive telecoms markets in the world for a number of years, and a freer BT will deliver even better value and innovation for our residential customers. We will now look at how we can simplify our pricing structures and make them more user-friendly."

That leaves the door open for potential line rental increases but it is unlikely that BT would raise its prices without offering price cuts in other areas. Unlike some of its competitors, BT has never tried to be the cheapest in the market but believes it has been fighting with one hand tied behind its back due to the regulation. The lifting of price controls will enable it to tailor its packages how it sees fit, letting consumers decide if its offer is good value. However, the price controls do not cover broadband internet access, a service many of its competitors have been offering as a free add-on to gain market share.

Damien Chew, an analyst with ING Financial Markets, said: "Given the competitive environment, BT will not be raising prices any time soon."

Ofcom has loosened its regulation of BT as a result of competition from cable companies, broadband internet companies and mobile phones forcing prices lower. Ofcom said mobile phones accounted for 31 per cent of UK voice calls while about 500,000 UK households and small businesses actively used voice over internet services. Also, BT's competitors have unbundled more than 600,000 local loops, at a rate of 100,000 a month. In local loop unbundling, BT's rivals put equipment directly into local exchanges.