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Price war looms if BT price controls relaxed

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Ofcom's plan to scrap price controls for BT after 22 years of having its hands tied could lead to a price war, industry watchers said today.

And while that could be good news for consumers in the short term, a price war could see some competitors losing out and sparking another round of consolidation.

"It is unclear how BT will structure their prices, but if they drop, it will inevitably spark intense competition in the home phone market, with BT's existing 12.9m customers benefiting from lower prices," said Blair Wadman, telecoms expert at price comparison service uSwitch.com.

"If the company slashes prices to entice those two million consumers who switched away in 2005, this would certainly see the five major home telephony companies in the UK engage in a price war in an attempt to gain additional market share. Increased competition would in turn lead to falling prices and greater choice for consumers."

But he warned that if prices decrease significantly, "smaller providers would struggle to compete, which might lead to further market consolidation".

Then again, with restrictions lifted, it could decide to increase prices...or do nothing. Publicly, at least, BT is playing today's announcement with straight bat.

Gaby Heppner-Logan, BT's Director of Regulatory Affairs said: "BT welcomes this consultation as further evidence of the highly competitive market in the UK. Residential call charges in the UK are already amongst the lowest in the world...and BT has already saved its customers more than £1billion over the past decade and this trend looks set to continue. We look forward to responding formally to Ofcom in due course."

But there are those who believe that plans to relax BT price controls are too hasty.

Four months ago, Ofcom was warned not to relax the rules that govern BT, despite its regulatory settlement with the UK's dominant telco following last year's Telecoms Review. UKCTA - the telecoms trade group that includes operators including Cable & Wireless, Colt, NTL and Thus - said competition in the sector would be put at risk if regulatory constraints are removed from BT too early.

UKCTA was concerned that plans to sweep away BT's regulation would be introduced even before rival operators have had a chance to go head-to-head with the dominant player.

As part of the Telecoms review and key to Ofcom's announcement today, BT created a new separate access services division - Openreach - responsible for providing equal access to BT's network for all providers. Within a month of its launch, Openreach faced its first investigation by Ofcom concerning charges for fully unbundled lines. Last month it emerged that Openreach didn't have enough staff to handle enquiries from rival operators. ®

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