Phone bills set to tumble as BT scraps 'peak rate': Price cut will save customers pounds 350m

BRITISH TELECOM stepped up the telephone price war yesterday by abolishing peak-rate charges for local and national calls.

The move lowers the price of calls made between 9am and 1pm by up to a quarter. It is the latest in a series of cuts, totalling around pounds 500m in a full year, which BT must introduce under rules set by the watchdog, Oftel.

BT's main rival, Mercury Communications, reacted swiftly by announcing the removal of its equivalent 'prime rate'. A spokesman for Mercury said: 'This shows that BT has at last woken up to the fact that it faces competitive pressure in local as well as long distance markets. If this sets the trend for future price reductions then it represents good news for all consumers.'

The abolition of BT's peak rate, which takes effect from 9 March, will save businesses about pounds 200m a year and households pounds 150m. It will bring down the cost of a three- minute local call by 5p to 15p between 9am and 1pm, and a three- minute national call by 10p.

The changes follow the introduction in December of lower weekend call charges and, more recently, of special rates for calls made to up to five numbers specified by customers. BT has also announced lower call rates on some international routes and a special scheme for infrequent users of the telephone.

Oftel said the latest move brings BT to within pounds 10m of the price reductions required in the 12 months to August. The watchdog added that the end of peak-charging will make it easier for people to understand their bills.

From 9 March, a single daytime rate operates from 8am until 6pm on weekdays, with cheap-rate charges from 6pm until 8am.

The Telecommunications Users Association, which has frequently complained that call charges are too complicated, said this was just a first step towards a more approachable pricing structure. The association also said that this and other price cuts would help BT's profits in future by encouraging people to make more use of the telephone.

Michael Hepher, BT group managing director, denied the company had been forced into the price change. He said it was responding to customers' needs. 'Some businesses have placed restrictions on their staff using the phone in the mornings. With BT they will no longer have to worry about that. So this is good news not only for all our customers but an important boost for the UK's economy.'

BT acknowledged that businesses would gain more than households from the abolition of peak- rate charges, but said that weekend call charges - introduced in December - were targeted more at residential consumers.

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