Wednesday, March 22, 2006

Ofcom Proposes to Deregulate BT retail Phone Cost Controls

Ofcom, the official telecom regulator in the UK, proposed that all phone companies, including BT Group plc, be free to set their own prices and compete for customers in future. The changes, which are subject to public consultation, would take effect from 1 August 2006.

Ofcom noted that the proposal comes 22 years after price controls were first imposed when the UK telecoms market was liberalized. Ofcom said new technology and the growth of competition have transformed the phone market; average call prices have fallen by more than 50% since 1996. Key developments in the market include:

  • Competing providers: more than 10 million households use providers other than BT for their phone calls, including more than 4 million households on cable networks [source: Ofcom Communications Market Report February 2006]

  • New technology: Industry estimates suggest that there are now more than 500,000 active VoIP users in the UK. VoIP services offer a significantly lower-cost alternative to traditional fixed-line calls. As more than 10 million households now benefit from broadband connections, VoIP services are likely to grow rapidly over time.

  • Competitive local access investment: Local Loop Unbundling enables a range of providers to offer customers voice, broadband and video services over existing phone lines. By February 2006 the number of lines unbundled exceeded 300,000.

Given this, Ofcom believes it is now appropriate to consider allowing existing retail price controls to lapse as increasingly effective competition between providers continues to drive down costs to consumers. These developments are also taking place against a background of continued growth in the market for mobile services. 31% of all UK voice call minutes originated from mobile phones rather than from fixed-lines, from July to September 2005. [source: Ofcom Communications Market Report February 2006.]

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