Cost of phone calls set to fall by £400m over the next four years

Homes and businesses across the country should benefit from annual savings of up to £100m on the costs of telephone calls over the next four years.

Up to £400m could be knocked off consumers' bills by 2009 if phone companies pass on savings expected under the new cost regime governing the country's main telecoms network which is operated by BT Group.

Led by Stephen Carter, the Ofcom chief executive, the telecoms and media watchdog has been working to overhaul the regulatory environment for telecoms services in the UK since last year and yesterday's announcement was the latest part of that review.

"Ofcom estimates that these controls on BT's wholesale network charges, when combined with effective retail competition, could potentially reduce telecommunications costs for UK businesses and consumers by about £350m-£400m over the four year period," the regulator said yesterday.

Ofcom is planning to remove controls on BT governing how much it charges to carry calls and data between the main UK telephone exchanges. BT now faces sufficient competition in providing this service from the likes of Cable & Wireless that Ofcom feels it can let the market establish prices.

Ofcom is also replacing BT's charge control for carrying traffic between local and main exchanges with a "safeguard cap" that will limit charge increases for this service to below the rate of inflation.

Jon Miller, the director at the comparison website uSwitch.com, said: "Ofcom's announcement to deregulate part of BT's network charges reflects the growing competition in the home phone market. Today's announcement will pave the way for savings to be made by consumers as competition in this area is now significant enough to push costs lower."

He said it was impossible to say how many pence per minute might be shaved off the price of a call because different phone service providers will pass on their cost savings in different ways. For instance, some providers that have now taken over line rental from BT, as well as the cost of calls, could use the savings to reduce their costs of line rental as a promotional tool to customers rather than simply reducing call tariffs.

Ofcom has also now valuedBT's copper wire assets. It will use this new value in future regulatory calculations when setting financial controls on BT.