BT sounds warning on 'crippling' price curbs

British Telecom last night delivered a massive tome to the industry regulator Don Cruickshank spelling out its opposition to a new pricing formula that would cut up to pounds 50 a year off the average domestic telephone bill.

The BT submission warns that if Oftel goes ahead with the planned price curbs it will cripple investment in the telecommuications industry, threaten thousands of jobs and prevent rival operators entering the market.

Oftel has until the end of May to study BT's evidence, along with submissions from other telecoms operators, consumer groups and other interested parties before publishing its final proposals.

If it cannot reach agreement with BT on the fresh price curbs and separate proposals for new powers to tackle anti-competitive behaviour by July then BT will be referred to the Monopolies and Mergers Commission.

Agreement between BT and Oftel is vital if BT's planned pounds 33bn merger with Cable and Wireless is not to be jeopardised.

In March Mr Cruickshank published proposals tht would limit increases in call charges to inflation less between 5 per cent and 9 per cent in the four years from July, 1997.

The curbs would slice up to pounds 1.3bn year from BT's cash flow and take about pounds 12 off the average quarterly bill of pounds 47. Mr Cruickshank added that, together with existing price controls, telephone bills would by the end of the century be pounds 20 a quarter lower in real terms than they are now .

But in its submission BT argues that the Oftel proposals would only allow it to achieve a return on capital of 8 per cent to 13 per cent and are based on overly optimistic assumptions about the growth in the market and BT's ability to raise efficiency.

BT says that Oftel's figures assume that call volumes will grow by 7- 9 per cent between 1997 and 2001, but BT believes the figure will be nearer half that.

Oftel also assumes that BT will be able to achieve efficiency improvements of 4.5 per cent a year against its average of 3.5 per cent since privatisation - a figure which has only been achieved with tens of thousands of job losses.

A BT spokesman said: "We remain of the view that over-zealous regulation will squeeze out rather than enhance competition to the detriment of UK customers and UK plc.

It also claims that the assumptions Oftel has made are "unrealistic".

BT's evidence says that Oftel appears to envisage a price cap similar in scale and nature to the one in force at present.

However, Oftel said that Mr Cruickshank's consultative document in March held out the possibility of the formula being reviewed after two years. If real competition had developed or was judged likely to develop then no controls over retail charges might be needed at all.