Ofcom clears path to reduced phone costs?

Ofcom decides residential telephone services market is competitive enough to determine its own pricing.

Ofcom has lifted retail price caps for line rental and call charges for an estimated 11 million BT residential, teleworker and small business customers, 22 years after the restrictions were first imposed.

The move leaves BT free to experiment with more flexible pricing to help it compete with cheaper telephony services offered by voice over IP (VoIP) providers and other rivals, such as Sky. The satellite broadcaster announced this week that its BSkyB service will bundle unlimited landline calls for £5 per month along with free 2Mbit/s broadband connections with its TV subscription packages.

Ofcom’s price caps applied to local, national and international calls, and calls to mobiles. The end of the caps could mean lower telecoms bills for teleworkers, and for companies that pay for their home workers’ connectivity.

BT stated that it is too early to say whether the prices of any of these services, or the £11 line rental fee, will go up or down, but Ovum analyst Joanna Hellstrom believes a cost repositioning is inevitable.

“With BSkyB offering a bundle with broadband, fixed telephony etc where it will charge £9 for line rental compared to £11 by BT, it is reasonable to assume BT will have to rethink its charges. Whether this will result in lowered charges or just more innovative bundles is unclear,” Hellstrom said.

Deregulation of the telecoms market is one of Ofcom’s top priorities. It believes there are enough rival providers for healthy price competition, particularly for low-cost VoIP, converged fixed-mobile packages and emerging “triple-play” systems such as BSkyB’s that combine voice calls, internet and TV or video on demand on a single bill.

BT is due to launch its own broadband TV service, BT Vision, this autumn. Meanwhile, Carphone Warehouse and Orange plan to include an additional mobile phone service as part of similar packages, which BSkyB cannot yet offer.

Richard Ireland, Ernst & Young telecoms analyst, said, “BSkyB retains a sceptical attitude to a quadruple play including mobile.”