British Gas may launch telephone challenge to BT

British Gas is considering launching an onslaught on the telephones market, a move which would represent a direct challenge to British Telecom. Chris Godsmark, Business Correspondent, reports on the latest evidence of the cut-throat competition between the privatised utilities.

Sources close to Centrica, the supply group which owns the British Gas name, said the move was one of a number of options being investigated to extend a brand which is being successfully rehabilitated after years of criticism over customer service.

One possibility was that a service would be launched under the name Goldfish, the brand created to launch Centrica's credit card. Despite initial scepticism, Goldfish has become the UK's fastest growing credit card, amassing 600,000 customers in the space of a year.

Centrica has also been closely monitoring the experience of ScottishPower, which has done more than any other company to expand the multi-utility concept. Spurred on by its takeovers of Manweb, the regional electricity company, and Southern Water, ScottishPower has moved aggressively into other markets including gas and telecoms.

A British Gas spokeswoman said: "We're constantly looking at the market. We haven't ruled it in and we haven't ruled it out."

Industry watchers see such developments as defensive moves by former monopolies eager to protect their existing customer base. In recent months British Gas has expanded the range of products offered to its customers, with trials of home insurance, bill protection insurance and the likelihood of an imminent move into the home security business.

British Gas has also proved more aggressive than expected in defending its share of the gas market, with controversial selective price cuts offered to loyal customers in some regions open to domestic competition. So far it has so far lost 934,000 customers, around 21 per cent of homes in competitive areas. Centrica will also sell electricity when the retail market opens to competition later this year.

Interest in the phones market has been boosted by recently agreed changes due in 2000 to shake up the UK's system of telecoms competition. The Government last year signed up to a European Union directive which would see Britain move to a so-called "equal access" regime similar to that in the US, making it simpler for homes to switch from BT.

The present system, known as indirect access, means existing BT customers have to dial three-digit codes to make long-distance calls with other operators, such as Cable & Wireless or AT&T. The new regime would make it easier for established brands, such as British Gas or Virgin, to offer phone services, probably by renting capacity off an established long- distance network.

The arrangement could probably see high street brands team up with some of the newer phone networks such as Energis. It would combine the phone company's infrastructure with the marketing knowledge and billing infrastructure of groups such as British Gas.

The explosion in phone competition in recent years has seen the wholesale cost of phone capacity drop steeply, with some 200 companies now licensed by Oftel, the watchdog, to offer telecoms services.

Yesterday one of the newest operators, Fibrenet, revealed it had completed its UK network ahead of schedule at a cost of just pounds 7m. The network is used for high speed data traffic for companies and is rented out to other phone operators.

The company, quoted on the Alternative Investment Market, has leased capacity from other operators such as Racal Telecom, which owns the former British Rail Telecom network. Fibrenet has combined this with its own regional switches, providing connections to 35 towns and cities, and a smaller network of its own in central London.

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