View from City Road: Competition rings loud and clear

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The Independent Online
Ignore the self-promotional drum- banging from BT about its latest round of price cuts. Discounts of up to 15 per cent for residential customers, new tariff deals for businesses, and reductions in the cost of some international calls are no more than the company had to do to keep within its regulatory price controls.

Moreover, the cuts it has opted to make are aimed at those who make most use of the telephone, leaving less scope within the price formula to bring in lower charges for everyone else. Predictably, BT is competing in exactly those markets in which Mercury poses the greatest threat; the rest of its customers can whistle for lower phone bills.

Not that any of that has stopped BT from trying to make the price cuts look like an act of generosity - even if the truth is that it has had to be dragged to the altar of value-for- money by its watchdog, Oftel, and even if its customers will soon have to pay consultants to work out what particular complex combination of packages is the most cost-efficient.

It would be churlish to fail to acknowledge that BT has improved its service. But it is fair to say that much of that has been prompted by a growing realisation that customers can take their business elsewhere. The fledgling cable television and telephone industry is snapping at BT's heels, and it is beginning to notice.

Optimists might even glean some evidence that this is having an impact on BT's previously elitist corporate culture. The latest price announcements were accompanied by a scheme offering Air Miles and gifts for points notched up against telephone bills. Not so long ago BT would never have dreamt of stooping to such gimmickry. Now, it says, these are among the things customers want.

For investors, the main message is that this latest round of cuts will not be the last. BT's price formula, limiting increases to inflation minus 7.5 per cent, has three years yet to run. And Mercury, while not price-capped, is bound to react if it is to maintain a competitive edge. The pressure on prices may be selective; the pressure on profits will not.