Price war sparked by new BT rates

A price war in the long-distance telephone market looked set to erupt last night as Energis, the telecoms provider owned by the National Grid, slashed its prices for business calls to the US to just 10p, which is 50 per cent lower than BT's basic rate.

The move coincided with a promise from Telewest, the country's largest cable operator, that its customers would pay less than BT rates on every equivalent phone bill.

The price war was seen last night as a response to BT's lower rates, effective today, which were mandated by Oftel, the telecoms regulator.

Sam Howe, Telewest's vice-president of residential services, said: "Despite the hype and the millions of pounds BT has spent in the press and on the TV, their price reductions are being introduced at Oftel's instruction. Our position is simple, we'll keep our promise - every bill is cheaper."

Energis customers spending pounds 150 a month per location on national and international calls will be required to register with the company to be eligible for the cheap US offer.

Energis is also offering lower prices to Australasia, Japan and other countries in the Far East. Daytime calls to these regions would cost at least 24 per cent less than BT's basic rate, the company said.

Anticipating BT's lower rates, a range of smaller, specialised telecoms operators also vowed to undercut the prices charged by the market leader. Swiftcall, one of many "call-back" services which set prices on the basis of the difference between outgoing and incoming international calls, said it would match the 10p offer from Energis. Meanwhile, rerouting services such as Telefficiency said last night they would continue to offer prices at least 15 per cent lower than BT's long-distance rates.

BT said it was "relaxed" about the announcements. "This just goes to show that competition is alive and well in the UK," a BT spokesman said. "Everyone knows that BT is reducing its prices [today] and so the market is responding."

But BT threw down a challenge, saying the 10p US offer was "just one price among many from Energis." The spokesman said: "We believe that, across the board, BT is still offering a competitive package."

Prices, particularly in the long-distance market, are set to fall even further as BT adjusts to the lower price base set by Oftel. It is expected to have to slash prices in real terms by 7 per cent, and BT said yesterday the long-distance market was bound to see "significant further reductions".

BT already operates a range of discount schemes. It said that large users already got deep discounts on international calls.

Energis, which built its fibre-optic national network in just two years along existing rights of way used for its electricity infrastructure, said it aimed to keep the pressure on BT in coming months. Claiming it has the most modern network in the world, Energis's chief executive, Mike Gardiner, said: "It's the efficiencies of that technological lead which has given us price advantages in the UK, and we intend to maintain that position to provide competitive benefits in the future."

Energis supplies major corporate clients such as British Gas, ICL and Boots. It has earmarked the medium-sized business sector for some of its future growth.