Commentary: Collect call from Oftel

BT yesterday bowed to the inevitable by agreeing to the new curbs on its telephone charges proposed by the regulator, Oftel.

The veiled threat from BT that it would sooner take the issue to the Monopolies and Mergers Commission than accede to a price formula limiting annual increases in its basic charges to 7.5 per cent less than inflation always had a hollow ring to it. So it has proved.

The new price cap will cut BT's profits, currently running at pounds 3bn a year, by a relatively modest pounds 100m and still leave it earning a rate of return of between 16.5 and 18.5 per cent.

Contrast that with the prospect of a lengthy and distracting examination before the MMC with no guarantee of any happier an outcome, and it is difficult to see why it took BT two months to accept Oftel's proposals.

The climbdown should be good news for BT's customers - on paper, the median domestic bill of pounds 46 should fall by about 3 per cent.

But there is one respect in which it may prove a more worrying harbinger for BT. Past experience has shown that when a privatised utility gives the regulator an inch, then the regulator is inclined to take a bit more. One only needs to examine British Gas's experience at the hands of Ofgas to see what kind of results this can have.

Having stood up for BT's customers, Oftel is now ready to do likewise on behalf of its competitors by forcing BT to account separately for its trunk and local businesses and publish interconnection agreements. For BT the ride is not going to get any easier.