Oftel warned of need to keep BT on leash

Consumer groups have warned Oftel, the telecommunications industry regulator, that it may need to keep retail price controls in place on British Telecom well into the next century, it emerged last night.

In July, Oftel pledged that the new price controls, which take effect next August and run for four years, would be the "last retail price controls". They will cut the average domestic bill by pounds 30 a year. Oftel said competition would replace the need for a retail price control mechanism.

But in a letter to Oftel, published yesterday, leading consumer organisations said this raised a "serious issue of principle", adding that they could not share Oftel's confidence that this should be the last set of price controls.

The new price formula will cover just 26 per cent of BT's revenues but 80 per cent of its residential customer market, mainly lower users.

But the letter, signed by five members of the Oftel consumer panel, urges the director-general of Telecommunications, Don Cruickshank, to undertake a comprehensive review of the telecoms market in 2000 - the year before the new price formula expires - to establish how much price competition had developed. "We are convinced that an exercise along these lines to analyse and evaluate emerging market forces will be essential before any conclusions can be reached as to what, if any, controls will be needed after 2001," it said.

Members of the consumer panel include John Hughes, chairman of the National Consumer Council's economic policy committee, and Stephen Locke, director of research and policy at the Consumers' Association.

Their letter quotes Oftel's conclusions that BT remains "a very powerful dominant player in most segments of the UK telecoms market" and that "it is impossible to predict exactly how the UK telecoms market will develop in the future and how competitive forces will shape it".

Oftel's deputy director-general, Anna Walker, said that while Oftel believed this would be the last set of price controls, it did not mean there would be no further need for regulation.

She said: "We will not wait for 1999-2000 before reassessing the market situation. Indeed, preliminary work on a review of effective competition in telecoms will begin this autumn and will include a thorough assessment of the competitive position of BT in all its markets."