Ofcom launches inquiry into BT's new low-price calls

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Ofcom, the new watchdog for the telecoms and media industry, bared its teeth yesterday as it announced an investigation into BT Group's recent low-price initiative for residential calls.

BT's new tariffs, which move nine million residential customers off its standard-rate call charges and on to its much cheaper BT Together discount plan, are launched today.

The regulator said it was launching a probe under the Competition Act into whether BT's new pricing structure constitutes an abuse of a dominant position under the terms of the Act.

Ofcom has emergency powers that could force BT to reverse its new price cuts within four weeks. Its statement said: "As a matter of urgency Ofcom is considering the case for seeking interim measures under the Competition Act. If Ofcom concludes that there is a case for the interim measures, the options available would include a requirement upon BT to cease or reverse the proposed new tariffs. Ofcom expects to reach a conclusion on whether interim measures are appropriate within the next four weeks."

BT, which said it had notified Ofcom of its price cuts on 25 February, hit back yesterday saying it was confident of its legal and regulatory position.

Gavin Patterson, a BT group managing director, said: "It does seem bizarre to me. We have made this move on tariffs to bring better value and simplicity to our proposition. We are terribly confident that in doing so we have met all our requirements from a legal and regulatory position."

However, the Ofcom announcement is a blow to the company. When it launched the new pricing structure, it was met with a chorus of derision from competitors including Carphone Warehouse and Tesco.

These same competitors have since complained to Ofcom, prompting yesterday's announcement from the regulator. At the heart of the Ofcom probe is a complaint from BT's competitors that although BT Together offers cheaper calls to residential customers, they are being forced to pay a higher line-rental than under the standard call tariff.

This affects the competitiveness of rival offers - known as Carrier Pre-Select (CPS) services - from the likes of Tesco, which still have to rely on their telecoms customers renting a line from BT.

Ofcom said: "These CPS operators need to route calls over BT's network using a wholesale service provided by BT. The CPS operators have raised concerns that BT's retail tariff packages for line rental and calls, when combined with the wholesale price that they must pay BT for call conveyance, will distort competition in the provision of residential calls."

Charles Dunstone, the chief executive of Carphone Warehouse, said: "By our calculations, BT's announcement last week reflected no real savings for customers but simply a reshuffling of prices."