BT accepts Oftel proposals to freeze customer bills

The telecoms giant BT yesterday accepted a package of proposals put forward by the telecoms regulator Oftel that will let rival companies offer identical services to consumers and will ensure the bills of its lowest-spending customers will not rise.

While the company said it did not like "every individual element" of the proposed package of measures, it said that, overall, "it balanced the needs of both BT's customers and shareholders".

Last month, Oftel ordered BT to offer a new wholesale line rental product to rivals on the same terms that it provides the product to its own consumer business, BT Retail.

The move means consumers will be able, for the first time, to pay for both line rental and calls from another telecoms operator, such as Centrica for example, under one bill.

BT said yesterday it had agreed to launch a new wholesale line rental product from 1 September with a "programme of enhancements" scheduled after that. The company also said Oftel's planned price control on its lowest spending 80 per cent of residential customers would come into play on 1 August.

"On average, customer bills will be reduced in real terms by the rate of inflation, which gives an appropriate balance between consumer protection and the flexibility needed by BT," it said.

The new control of RPI minus RPI, which replaces the existing control of RPI minus 4.5 per cent, comes into play at the beginning of August and means customers' bills will be frozen at current rates.

Oftel, which is headed by David Edmonds, said last month that the control would be revised to one which pegged prices to the rate of inflation once the new wholesale line rental product had been widely taken up. It plans to review the market again in 2004 and will withdraw all controls if its believes the market is "truly competitive".

Chris Godsmark, an analyst at Investec, welcomed the move, estimating the new price controls could improve BT's gross margins by up to £120m over the next two years. He estimated the retail price control accounts for 13 per cent of BT's £20bn of group revenues, or about £2.5bn of revenues a year, and that the first change in the control would be worth £62m to the company.

"The one slight disappointment is that the second stage relaxation will take longer than we had hoped for," Mr Godsmark said, adding the RPI+0 price cap, which would allow bills to rise at the rate of inflation, would probably not arrive until 2004.