Oftel move will permit BT rental rise

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Industrial Correspondent

A radical shake-up of the telecommunications industry will be announced next week by the watchdog, Oftel. The changes will allow BT much more freedom on pricing - including the abolition of the existing cap on line rental charges - but will also give Oftel stronger powers to prevent anti- competitive practices by the company.

The proposals, which are the result of many months of consultation, also aim to end what are known as access deficit payments - sums paid to BT by other companies which use its local cabling systems.

The payments are indended to compensate for losses in the local networks. BT estimates that these losses are at least pounds 1.4bn a year and believes that it is entitled to some contribution to reflect investment of about pounds 20bn in the network over the last 10 years.

Unless BT agrees the changes, the matter will be referred to the Monopolies and Mergers Commission. The argument between the regulator and the company is expected to focus on the overall result for BT, which Oftel believes will be broadly neutral.

BT has lobbied for years for freedom to accelerate increases in line rentals to offset the losses in local networks. But now that cable television companies have become a real threat in telephony, there is a view that the company will be constrained in announcing large increases, even if the cap is gone.

While the cap on line rental charges will be lifted, BT will still have to keep within an overall price limit on its basic services of inflation minus 7.5 percentage points.

The company is likely to offer various options in billing customers. One rumoured possibility is a number of "free" call minutes for a pre- set quarterly charge while another is free off-peak local calls.

While BT will be allowed more flexible pricing, Oftel may not allow it to use new special discount packages for larger customers to help meet the basic price cap. This may go some way to addressing criticism in the past that BT has directed price cuts at the more lucrative customers and services at the expense of the less well-off. BT has said that nobody's bills will go up unacceptably in the event of change.

To further protect those who use the telephone least, it is expected that Oftel will propose safeguards to ensure their total bills do not go up by more than inflation.

Consumer groups have warned that without some protection, freedom to increase line rentals will hurt "low users" as rental accounts for a very large portion of their bills.

On competition, Oftel is expected to simplify the clauses in BT's licence to state that the company must not act in an anti-competitive way.

This new and less detailed approach is expected to be more effective and harder for BT to circumvent. The watchdog body may also issue guidelines on what constitutes anti-competitive behaviour in the telecommunications marketplace.