Ofcom mulls lifting price controls on landlines

By Steve Malone

Posted on 22 Mar 2006 at 10:29

The media watchdog Ofcom is considering whether to deregulate the price of land lines in the UK from August this year. If the proposal comes into effect it would mean that BT would be able to set its own price for land line calls in Britain for the first time in 22 years, since it was privatised.

While this might sound like giving BT a licence to print money Ofcom considers that times have changed since the ceiling on land line pricing was imposed. In the last ten years the price of land line calls has fallen by over 50 per cent.

Although BT is still the dominant provider of domestic telephony services, there has been a steady drift away from the former monopoly supplier and now an estimated 10 million households now use a telephone supplier other than BT.

Apart from the competitive pressure, there are a number of technological advances which are pushing down the price of telephone calls.

The biggest change has been the almost universal adoption of the mobile phones. Ofcom's own research showed that there were 62.5 million mobile subscriptions in 2005, a figure that is actually higher than the total UK population. In total, 31 per cent of all UK voice call minutes came from mobile phones rather than from fixed-lines, from July to September 2005.

As a result, fixed-line revenues fell by nine per cent to £10.3 billion compared with the previous 12 months while revenues from mobile phones grew by 16 per cent to £13.6 billion. Mobile phone revenues in the UK are now comfortable ahead of landlines.

Local Loop Unbundling (LLU) is now gathering pace with around 300,000 lines in the UK now switched over to other telecoms providers other than BT. Finally, riding on the back of the massive switch to broadband Internet services, cheap VoIP calls are becoming increasingly widespread. With the likes of Tesco and Dixons now offering VoIP telephony packages, the use of phone calls via the Internet is likely to increase.

Ofcom says the proposals include important protections for vulnerable groups as well as specific price guarantees from BT on key services including line rental. These protections will stay in place until August 2007.