BT shake-up brings free calls in sight

PETER RODGERS

Business Editor

BT yesterday moved a step nearer to offering radically new tariffs to its customers, which would include higher line rentals in exchange for lower call charges.

Among the options believed to be under study is an offer of free local calls, though probably restricted to certain off-peak times. The company will also be able to tailor tariffs to customers' usage, for example heavy users of long-distance or international calls.

The moves emerged as Don Cruickshank, the telecoms regulator, announced the next step in consultations on the removal of price limits on BT's line rental charges, an essential first step to a wider range of tariffs.

As a result, BT is expected to propose at least three new residential tariffs. One would have rent and call charges increasing by no more than inflation from current levels. The others would have higher rentals, in two stages up to about pounds 30 a quarter, but with call charges 20 to 25 per cent lower than now.

BT would be entitled to take this further and offer free local calls, although telecoms specialists believe it is more likely to offer free or very cheap local calls only at off-peak periods. The move is regarded by BT as vital to its campaign to slow the flight of customers to cable companies, which are already taking 50,000 a month and eating into BT's 95 per cent market share.

The announcement by Mr Cruickshank that he is starting the statutory consultation period on the line rental proposals, came a day after a Monopolies and Mergers Commission report cleared the way for customers to take their telephone numbers with them when they move to BT's competitors. This is expected to be a big boost to the cable companies, and BT is anxious to put more marketing weapons in its armoury to fight them.

Mr Cruickshank said it was appropriate for him to lift the cap on line rentals, giving BT the freedom to adopt a "more imaginative approach" to the way it prices services, particularly for residential customers.

BT will have to offer falls in call charges to offset any increase in line rentals. Mr Cruickshank said BT had told him that it would structure the packages so no customer, for a given level of usage, would see any real increase in their bill, and most would see reductions.

But he warned that BT would have to launch a big media campaign to help customers understand what was being proposed. And BT would still have to achieve overall price reductions of around pounds 400m a year under the current price control system.

Customers in BT's light user scheme, who do not use their telephones much, would be guaranteed no real increase in their bills, Mr Cruickshank said.

BT said that it wanted to sell not just on price but on quality and variety of service.

Mr Cruickshank said that an indirect benefit of removing the cap on line rentals, which restricts increases to the rate of inflation plus 2 per cent, is that he will abandon the "access deficit contribution" charging regime, a mechanism used to channel money between telecoms operators.

Mercury said Mr Cruickshank's plans to end access deficit contributions would come too late to prevent claims from BT for "a whole range of unreasonable costs, the most extraordinary of these being the funding of a campaign to win back customers from Mercury".

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