Shares in British Telecommunications Plc, which had been up 3p in early trading, turned tail and sank 7p to 355 pence after soon-to-depart Director General of Telecommunications Sir Bryan Carsberg issued a much harsher than expected new regime under which he wants the company to operate. For the first time since privatisation, the benefits of […]
Shares in British Telecommunications Plc, which had been up 3p in early trading, turned tail and sank 7p to 355 pence after soon-to-depart Director General of Telecommunications Sir Bryan Carsberg issued a much harsher than expected new regime under which he wants the company to operate. For the first time since privatisation, the benefits of the review are specifically intended to benefit residential customers over business: connection charges must be cut to a maximum of UKP99 from UKP152.75. Average tariffs must rise no faster than 7.5 percentage points below the rate of inflation, for a four-year period starting from August 1, 1993 – compared with the current 6.5 points, which with an inflation rate of 4.3% and falling means a bigger real reduction in prices than hitherto. The Director General, who leaves the Office of Telecommunications for the Office of Fair Trading this week, obviously decided to go out with a splash. Alongside the tough price restrictions, he formalised, for the first time, Oftel’s belief that BT’s local and long distance businesses should file separate accounts and deal with each other through a published contract. Sir Bryan has asked the company to prepare a speedy timetable for its implementation, the aim being to demonstrate to competitors the fairness of interconnection fees. Just how speedy can be seen from the timetable that Oftel is proposing for its own consultative study on the detailed implementation of the split. The consultants, says Sir Bryan, will be asked to report by the end of October, adding I envisage that my successor will wish to outline a timetable to see the first separated accounts prepared in the financial year 1993-94. On exchange line rentals, where British Telecom wanted a real increase of 8 points above the rate of inflation, the cap continues at 2 points above; neither leased line nor switched services charges may rise by more than the rate of inflation; BT’s optional tariffs and quantity discounts cannot be included in the overall RPI minus 7.5 figure; BT must modernise its network so that digital services are available to 99% of customers by July 1997 and 2m miles of optical fibre to be installed. Sir Bryan said the price measures were based on an improvement in BT’s efficiency of an average 3% a year, adding I believe this is a demanding but achievable target. He said the arrangements he was proposing for separate accounting of the various businesses would make it possible to monitor for the first time whether BT was covering the costs of providing exchange lines taking account of contributions from competitors and from its own call charges. This was important information for decisions about the need for rebalancing the price formulae. BT is not happy, seeing the proposals as unduly harsh, and some of them antithetical to the spirit of the duopoly review. The last proposal, on digitalisation, in particular is being described as interventionist. But Oftel does not intend to negotiate. If the company does not agree within two weeks, Sir Bryan says that the issue will be sent to the Monopolies & Mergers Commission. Analysts were hazarding that the switches would cut 1993-1994 profits by anything from UKP50m to UKP150m, but all things are relative – according to Reuter, British Telecom is the most profitable non-oil company in the world. Cable & Wireless Plc shares were down 9p at 543p in sympathy – Mercury Communications Ltd must compete against the new lower prices BT has to set.