Deregulated BT poised to slash call tariffs

BT will ease fears that it plans to raise line rental charges when it unveils a series of price cuts to its telecoms services in a presentation expected later this week.

BT's call tariffs have been regulated since it was privatised 22 years ago. Yet, from Tuesday, regulation will be lifted following regulator Ofcom's recent ruling that competition in the UK fixed-line telephony market was sufficient to allow BT to compete on an even keel with its competitors. However, the price cuts will not affect its broadband prices as those are still subject to regulation.

As a result of being freed from price regulation, Ian Livingston, head of BT Retail, said: "We will now look at how we can simplify our pricing structures and make them more user-friendly." Mr Livingston has since refused to be drawn on the company's plans, with the price shake-up expected this week.

The price review generated fears that BT might reduce call charges, to compete with aggressive competition from the likes of Carphone Warehouse and Sky, but increase line rental charges. However, BT would risk losing customers if it hiked line rental charges while its competitors reduce those tariffs. Sky's chief executive, James Murdoch, unveiled plans to cut line rental charges to £9 a month in the fourth quarter. BT charges around £12 a month but offers a discount to customers who pay by direct debit. On top of line rental, BT customers currently pay monthly subscription charges of £11, £16.50 or £25.50, depending on their usage levels.

Although BT will look to protect its market share in the UK telephony market by cutting prices, it has no ambition to be the cheapest in the market. The company instead focuses on customer service and offering innovative services that users are prepared to pay for. Even in traditional voice services, BT has developed a product that vastly improves the sound quality of a phone call, and continues to push its BT Fusion service that combines fixed-line pricing with the convenience of mobile phones.

The company will target one million voice over internet, or VoIP, subscribers within the next 12 months. BT has embraced VoIP technology and already has 135,000 subscribers using the service. VoIP services allow users to call each other for free over broadband. BT expects between 5 and 10 per cent of total UK voice calls will be made using VoIP within two years.