Watchdogs sparked a revolution in the telephone market yesterday when BT was freed from price controls on home phones after 22 years.
Ofcom unleashed the telecoms giant from a strict price structure --introduced when the company was first privatised - which was aimed at preventing BT from abusing its monopoly.
The regulator believes the market is sufficiently advanced to allow open competition in fixed-line phone rental and calls.
In theory, BT could ratchet up prices, but competition from Sky, Carphone Warehouse and others makes this unlikely.
BT promises so-called "vulnerable" customers will be protected from cost increases, while vowing that it will fight to hang on to market share.
BT has about 58 per cent of the market for home phones, but it is losing about 5 per cent a year as customers switch to cable or internet rivals.
Some home phone packages will go up in price, but the trend will mostly be down, BT claimed.
As the price of phoning from home falls, the mobile phone industry will come under increased pressure to lower its rates. Analysts said this partly explains the fall in the share price of Vodafone and others.
Ian Livingston, the chief executive of BT Retail, welcomed the news, saying of rivals: "They will have to compete with a BT that is now free to compete with them. This allows us to operate like a normal business. The world is going to change."
Blair Wadman, the telecoms expert at the price comparison group uSwitch, said: "It is unclear how BT will structure its prices, but if they drop it will spark intense competition in the home phone market, with BT's existing 13 million customers benefiting."
The rules are due to come into place from 1 August, although a consultation period will follow to allow consumer groups to raise objections.
Prices have fallen 50 per cent since 1996 as more companies have entered the telecoms market. Ofcom said increased competition, better informed consumers and the rapid growth of new technology made deregulation sensible.
Further technological developments seem likely to make the public phone network largely redundant in the next five years. The company is spending £10bn on a giant internet network that will service the majority of BT phone traffic.
The so-called spaghetti junction of wires down which most voice signals travel will be converted into a more coherent system.
BT is working on a device dubbed the home hub which will provide wi-fi internet access and a phone portal while allowing users to download music, videos and television programmes.
BT customers that sign up to one of the more expensive home hub deals can expect to get the box for free.
Rogue operator dupes the regulator
By Simon English
The growing problem of mis-selling in the phone market was highlighted yesterday when it emerged that even the industry regulator had been targeted.
Rogue phone firms contact BT customers claiming to have an exclusive offer, without making it clear they do not work for BT. They secure apparent agreements to switch phone provider, but the first the customer knows of it is when a letter arrives from BT saying the company is sorry to lose them.
BT gets more than 20,000 complaints a month about this practice, known in the industry as slamming.
Ofcom was targeted three months ago, according to a senior telecoms source, coming close to seeing parts of its phone network switched. "I said to them, you can complain to the regulator if you like but I doubt they will do much about it," the source said.
Ofcom, which uses multiple phone suppliers, did not make a switch after it received a letter from BT.
Ofcom said yesterday it was looking into what rules it could enforce on the issue. "We are investigating ...this issue," a spokesperson said. "Life for a provider who tried that on Ofcom might get very interesting."
Ofcom can impose fines of up to 10 per cent of turnover on firms guilty of slamming.Reuse content