Outlook: BT's future without price controls

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TIME WAS when Oftel's review of controls on BT's charges - held once every five years - would cause a frenzy of anticipation and guesswork in the City. Would the regulator be harsh, fair, or simply gullible? And how would BT react? Would it cry foul and appeal to the Monopolies and Mergers Commission for arbitration - as the water companies are threatening to at the moment over Ian Byatt's proposed tariff controls - or would it stoically take the medicine and cut costs to match?

It is a sign of how much has changed in the fast moving telecommunications industry that yesterday's consultative paper from Oftel on what, if any, price controls should be imposed on BT after the present ones expire in 2001, went almost unnoticed in the City.

Nor did it produce more than a murmur of protest from BT, despite the fact that for the regulator even to ask whether continued controls would be necessary seems to fly in the face of a promise by the previous head of Oftel, Don Cruickshank, that price capping would be abandoned come the end of the present period. By then, he anticipated, competition would have developed sufficiently to do the job for him.

The reason for this lack of angst is not hard to fathom. Already little more than 30 per cent of BT's revenues are price controlled. In most of the business market, BT can charge what it likes, subject only to the sanction that if it does, the competition will take most of its customers.

Even in the regulated part of the market, many of the controls will have become irrelevant by the time they expire, such is the speed of development in competition to BT from the mobile and cable industries. Now that BT has agreed to open up its own local loop to competition, charges should soon be falling faster than the regulator can cap them, in any case.

Oftel's review will therefore be largely confined to safeguarding some basic social obligations - the interests of low users and that of providing a universal service. The upshot is that probably rather less than 10 per cent of revenues are going to end up price regulated.

Given that this is likely to be the 10 per cent of sales nobody wants, a separate issue may arise as to whether competitors should be forced to contribute to the costs of servicing them.

However, the regulator won't entirely have managed himself out of a job. Unless BT does something seriously wrong, it is likely to remain the dominant UK player. Oftel will have a continued important role in policing the market place and ensuring fair competition. That, in itself, requires price regulation, but at the wholesale rather than the retail end of the market. Someone has to set the prices competitors pay for using BT's network. That someone is Oftel.

As voice telephony moves progressively over to mobile phones, leaving the fixed line market to broadband services, there may in any case be a new role for the David Edmonds, director general of Oftel, in regulating the at present untouched mobile market. One thing is certain. BT is not going to get rid of its old sparring partner so easily.