Ofcom clears path to reduced phone costs

BT is free to experiment with more flexible pricing as long-standing curbs are removed

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

The move leaves BT free to experiment with more flexible pricing to help it compete with cheaper telephony services from 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.

The announcements could mean lower telecoms bills for teleworkers, and for companies that cover their home workers’ connectivity costs.

Ofcom’s price caps applied to local, national and international calls, as well as those made to mobiles. BT stated that it is too early to say whether the prices of any of these services, or the £11 line rental fee, would subsequently go up or down, but Ovum analyst Joanna Hellstrom believes a significant 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 that 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. The watchdog believes there are enough rival UK providers to foster healthy price competition, particularly for low-cost voice over IP (VoIP) services, converged fixed-mobile packages and emerging “triple-play” systems such as BSkyB’s.

BT will 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 can not yet offer.

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