BT caves in over Oftel price demands

TOUGH price controls, proposed by the regulator Oftel and expected to be agreed by BT early next week, could reduce the company's profits by pounds 100m a year.

Despite a battle with Oftel over the past fortnight BT has backed down on all the regulator's main proposals, which will limit price increases on the basket of basic services to inflation minus 7.5 percentage points.

One minor area still to be resolved is that of private circuits, in which Oftel wants to limit all price increases to inflation.

Although the overall price cap is already inflation, BT can lower prices more on one type of private circuit at the expense of others, giving it more flexibility to compete with Mercury. This had led to complaints to Oftel.

Oftel has now said it will study the cost to BT of operating various types of circuit and will pronounce on allowed price increases in October.

It is believed that Touche Ross has been enrolled to ensure proper allocation of costs. But Oftel repeated that no concessions had been made on the main proposals put forward in June.

BT has hinted that it may go to the Monopolies and Mergers Commission rather than accept the onerous controls. But Iain Vallance, its chairman, is concerned about the management time a referral would entail.

A BT source said the company was concerned that the agreement should not be seen as a climbdown. He said BT considered an MMC referral very seriously. The company is likely to attempt to dress the agreement up in a favourable light on Monday or Tuesday.

In its battle for an easier deal BT objected strongly to Oftel demands that it should separate its local and national operations in accounting terms. Oftel, however, has remained adamant that this is necessary if others are to be able to use the BT wires on fair terms to deliver their calls.

A further BT complaint is that Oftel wants to remove the bulk discounts to large customers so that small users gain more.