Oftel proposes relaxing rules for Mercury

MARY FAGAN

Industrial Correspondent

Don Cruickshank, director general of Oftel, the telecommunications watchdog, created fresh controversy in the industry yesterday by proposing significant relaxations in the rules governing Mercury, the main rival to BT.

The move came only 24 hours after a row erupted between BT and Oftel concerning plans by the regulator to acquire "sweeping" new anti-competitive powers over BT, fuelling speculation that the company will end up at the Monopolies and Mergers Commission.

Under yesterday's proposals, Oftel would remove from Mercury the need to publish details of tariff changes 28 days in advance. Other changes include an end to the prohibition of unfair cross-subsidies to Mercury's apparatus production and supply businesses and abolition of the need to keep separate accounts.

Mr Cruickshank said the changes were justified because Mercury did not have "market power" at national and local call level. He said: "This view is based not only on its market shares but also on other factors, including that it faces considerable competition from BT and new entrants." But he added that Mercury could face similar restrictions to BT in the international market, where it has a share of just under 25 per cent.

A spokesman for BT said: "It looks as though they are downgrading Mercury from the status of the second player to `just one of the others'. This is a relaxation that makes life easier for Mercury but it also appears to put Mercury into the position of second-class citizen."

One industry source said that the more lenient approach to Mercury made it all the more likely that BT would opt for a reference to the Monopolies and Mergers Commission rather than accept Oftel's proposal to acquire a more general anti-competitive power over the company. He said there was a "more than 90 per cent" likelihood that the MMC would become involved unless Mr Cruickshank backed down, adding: "It looks like being a busy 1996."

Mr Cruickshank said: "My aim is to remove unnecessary restrictions on Mercury while keeping in place appropriate controls in the international market. I believe the detailed controls in the existing licence unnecessarily restrict Mercury's commercial freedom."

Mercury welcomed the proposals, saying they would put it on an equal footing with other operators and "give us the freedom to compete more effectively and the flexibility to meet our customers' individual needs".

The proposals are the latest in a series of moves by Oftel that have increasingly angered BT and resulted in a sharp deterioration in the relationship between the company and the watchdog. The culmination was Oftel's statement on Thursday outlining plans for general anti-competitive powers over BT, which Mr Cruickshank said were vital for further development of competition and liberalisation. BT must accept those proposals or be referred to the MMC, with the terms of reference a matter for Mr Cruickshank.

Mr Cruickshank argues that the existing system, which involves almost 80 different anti-competitive items in BT's licences, is cumbersome and makes investigation of the company - and any subsequent action - drawn- out and overly complicated. "I think this [change] is absolutely essential to moving forward," he said.

Mercury yesterday announced the appointment as chairman of Rod Olsen, the New Zealander recently made acting chief executive of Mercury's parent, Cable & Wireless. The dramatic rise of Mr Olsen - previously C&W's finance director - follows last month's sudden departure of Lord Young of Graffham, then C&W.