BT fires first shots in price war

Ofcom, the new telecoms regulator, launched an immediate review into BT Group's decision to fire the opening salvo in what is set to become a long and bitter price war with its rivals Carphone Warehouse and Tesco.

Ofcom, the new telecoms regulator, launched an immediate review into BT Group's decision to fire the opening salvo in what is set to become a long and bitter price war with its rivals Carphone Warehouse and Tesco.

BT announced plans to abolish its standard charging rate for 9 million residential customers and move them on to its BT Together Option 1 tariff. This would become the benchmark for BT's fixed-line call prices, the company said.

Standard-rate customers would now pay 3p a minute in the daytime and 5.5p for up to an hour call in the evenings and at weekends. This is itself a reduction from 6p an hour, according to the company's announcement. The new tariffs compare with up to 60p an hour for simple, local calls under the standard rate.

However Carphone Warehouse, which will unveil free national calls today for its TalkTalk fixed-line customers, and Tesco dismissed the move.

Charles Dunstone, the Carphone Warehouse chief executive, said: "Thank you BT but it is too little, too late. Today, it's great you've confirmed that your customers have been paying too much but you are still more expensive than TalkTalk."

Carphone Warehouse believes up to £2bn of BT revenues are up for grabs if consumers can be persuaded to leave the former state-owned operator.

Tesco launched a withering attack on BT's initiative, claiming it was "all smoke and mirrors". Andy Dewhurst, Tesco's telecoms chief executive, said: "This announcement is designed to inhibit competition, which is bad for customers. Increasing their line rental is not what we would call a price cut. We are confident we still offer families a cheaper option to BT, which is why more and more are coming to Tesco."

In what became a typically confusing exchange between the rivals, BT said it was actually reducing line rental for its BT Together customers from £11.50 per month to £10.50.

However, Tesco pointed out that standard-rate callers moving to the cheaper call tariffs would have to pay £1.50 a month more in line rental, having been paying £9.50 a month under the standard rate. Mr Dewhurst said: "BT are denying 9 million people the chance to be on their standard rate and forcing them on to a subscription-based tariff with higher line rental."

However, in a potentially more ominous development for BT, Ofcom said it was looking into the detail of the announcement following a meeting at the regulatory body yesterday.

A spokesman for Ofcom said: "We are aware of today's announcement from BT. We are considering a full investigation. We cannot comment further at this stage because we need to look at the detail of the announcement."

Ben Verwaayen, the BT chief executive, said: "We are not saying for each and everyone this will be a cheaper offer. What we are saying is that it is as transparent as we can get. This is not a disguise or trying to hide behind complexities. This is simplicity at its ultimate."

On Tuesday the House of Commons public accounts select committee urged Ofcom to do more to encourage consumers to take up phone services offered by BT's rivals.

Jon Miller, director of uSwitch, an independent analyst, said: "It's encouraging to see that in most cases BT customers will see bills decrease, with average users seeing price cuts of about £24.09 a year. However, on the downside, these changes will have a detrimental impact on 2.5 million carrier pre-selection customers who are billed by BT for their line rental but pay another provider for their calls. These customers will see annual bills rise by £12 a year."

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