View from City Road: It's only the regulator that BT answers to

Click to follow
BT has few enough occasions to bask in self-reflected glory. No harm is done in allowing it to earn whatever public relations brownie points it could from announcing cheaper telephone calls in the weekend graveyard.

Of course the truth of the matter is that BT has to make price cuts worth about pounds 500m in order to fulfil its obligations under the current Oftel price cap. Price cuts at the weekend will give back about pounds 125m to customers, so BT has to come up with another pounds 375m of revenue reductions to stay on the right side of the regulator.

It would be nice to think that BT's hand has been forced by the forces of competition rather than the tightening grip of its industry regulator. By no stretch of the imagination is this the case.

Mercury, a competitor that has largely concentrated on the business market, will follow down BT's new prices shortly. Some cable television companies with their own switching ability have led customers to send back their BT phones with the offer of cheap or even free calls within the local network, but these are much the minority.

Mercury's One-2-One, with its come-on of free off-peak local calls for non-business users, is a challenge to other mobile telephone operators and not BT's conventional fixed-line network.

Because the move by BT is not a response to competition it has certainly chosen the least painful way, in a commercial sense, of meeting its obligations to Oftel.

It would like to stimulate call volume in order to soften or even recover the reduction in price. At times of peak use capacity contraints are greatest and so are the costs of providing a call.

By contrast network costs are considerably lower off-peak, so higher volume has a bigger beneficial impact on BT's bottom line at that time of day.

Appreciation of this fact enabled BT shares to recover an initial 2p fall to leave them 3.5p higher at 465.5p. Higher call volume is likely to be the key to sentiment towards BT shares for the time being.

Thursday's second-quarter figures from the company are expected to provide some comfort on that front. But the key number will be the interim dividend. An increase of up to 10 per cent will point up the attractions of a dividend yield standing at a 15 per cent premium to the stock market generally.