Price caps to continue on Yell, competition watchdog rules

Yell Group, which publishes the ubiquitous Yellow Pages, faces the prospect of continued regulation of its prices after the Competition Commission found competition in the directories market was not sufficient.

The commission's provisional findings are a blow to Yell, which had hoped internet competition and BT's return to the directories market would provide adequate evidence that price controls were no longer necessary.

Yell competes against the likes of Thomson, BT and Kingston Communications in the classified directories market. The commission did not include local classified directories as a "real alternative" to Yellow Pages.

But the commission was not convinced the internet or Yell's competitors have reduced Yell's dominant position regarding pricing. It argued that Yell has a market share of 75 per cent - five times that of its closest rival - and there is little, if any, price competition. Diana Guy, the chairman of the inquiry, said: "We have found that competition is not working effectively."

Yell and other interested parties have until 14 July to respond to the findings, with the level and scope of possible price controls the focus of discussions. The commission said it would take into account the changing nature of the market in deciding for how long price controls will be required. That leaves the door open for future regulatory reviews of the sector to scale down the scope of price caps if competition picks up.

John Condron, the chief executive of Yell, said the company was "disappointed with the provisional findings".

The price Yell charges advertisers to be included in Yellow Pages has been controlled since 1996 when it was part of BT. At that stage, a price cap of inflation minus 2 per cent was set. The controls were made more stringent in 2001 when a cap of inflation minus 6 per cent was established. The latest review, which was referred to the commission in April last year, has not indicated whether the current cap will be maintained, loosened or raised based on its findings.

Yell shares closed down 11p at 495p yesterday, yet some analysts remained upbeat despite the continued regulation. Anthony de Larrinaga, at SG Securities, said the commission has nodded towards future threats to Yell's dominance. "That's a tacit admission that competition is emerging," he said, adding that the findings left room to ease the price controls as there was no mention of the need to cut prices.

In a broader sense, he said price controls stifle competition by raising barriers to entry for new players.