BT set for new row with Oftel over charges

A FURTHER clash is likely between BT and the regulator Oftel over how much the telephone company should reduce its prices this year.

The company says that price cuts imposed by Oftel should take into account any reduction in its revenues from special offers, including cheap calls on Sundays and cut-price deals on some calls overseas.

BT has been trying to attract customers through special temporary schemes. Before Christmas all calls made within the UK after 3pm on Sundays were charged at the local rate. Cut rates are now being offered on calls to Europe at certain times and schemes for North America are planned.

Oftel says BT has to make further price cuts this year to keep within its price cap of inflation minus 6.25 percentage points. The company claims that potential lost revenues from special schemes mean the price reduction should be less than Oftel wants.

Demands for a better deal for customers are likely to intensify on Thursday, when BT reports its third quarter profits. These are expected to grow to around pounds 780m from pounds 759m last time.

The special deals are widely seen as a marketing ploy to fend off competition from Mercury and cable television companies. A BT source said: 'The schemes have a real benefit for customers but they could potentially cut our revenues.' It was always made clear by BT that they should be included in calculating price reductions.

Oftel said it was unlikely that a one-off cut in prices which was then reversed could be offset against overall price reductions for consumers. The regulator wants a further 2 per cent price cut this year on BT's basket of basic services.

BT is also arguing that lower- than-expected revenues from directory inquiries should be offset against Oftel's demands for a drop in charges.

Oftel is willing to make some concessions because BT made a one-off cut in call prices when it began to charge for inquiries. But the regulator argues that, while BT's revenues on directory inquiries have been lower than predicted, so too have its costs.

BT is already allowed to include bulk discounts for business users when calculating whether it meets the 'retail price index minus X per cent' formula. This, however, will end when a new formula - inflation less 7.5 percentage points - comes into effect in August.

The price issue underlines the worsening relationship between BT and the regulator. Iain Vallance, the company's chairman, has attacked Oftel for interfering with the day-to-day running of the business. The company also faces uncertainty over how the new head of Oftel - as yet unnamed - will tackle the role.

The Government, which is set to raise up to pounds 5bn by selling all or part of its 22 per cent stake in BT, is believed to have finally found a director-general for the watchdog after the departure of Sir Bryan Carsberg last June.

Despite the forecast increase in third quarter profits, pre-tax profits for the full year are expected to fall to pounds 2.6bn from pounds 3.1bn last year. Analysts expect the figure to include a charge of about pounds 500m to cover redundancy payments.