Carphone shoots second in phone price war

BT fires back and Ofcom steps in

Carphone Warehouse today announced that all calls on its TalkTalk network would be free as it joined the residential phone price war.

Ofcom stepped in to say that it would be looking at the price cuts announced by BT and was "considering a full investigation" of BT, an Ofcom spokesman said.

And, in the third shot of the war, BT issued a statement slamming the Carphone offering as the "biggest lottery in town." The telco giant pointed out that only 2 per cent of phone customers - around 400,000 - were TalkTalk customers and that therefore "the chances of making six consecutive calls for free to other Carphone customers are about the same as picking six winning numbers in the Lottery."

Carphone Warehouse claims that calls to other numbers are already cheaper than the new BT rate.

Matt Cansfield, research director at Ovum said: "It's a war and it will get vicious. It will be great for consumers. BT has shown that it will compete like crazy."

In yesterday's announcement, BT effectively moved all its customers to its discounted BT Together Option One package. While BT said that the new prices had been under preparation for some months, this was seen as a spoiling move for the Carphone Warehouse announcement.

BT said that this would make it easier for its customers to compare prices. The company, and now defunct regulator Oftel, were under fire from MPs earlier this week for its confusing tariff structure.

But BT also pushed up line rentals from £9.50 to £10.50 per month and dropped the £2.15 a month call allowance – effectively penalising low usage customers. This is what got Ofcom's nose twitching and will give it the excuse it needs to have a headline-grabbing full investigation of BT.

Cansfield pointed out that the new Carphone Warehouse deal would mean that the paying calls would subsidise the free ones. Carphone Warehouse expects to lose £8m in the first year on the deal but as Cansfield pointed out: "It makes a good marketing headline.

"To guess how it will all end we should look at the US. There, AT&T consumer revenues are about one third of what they were seven or eight years ago. BT can expect the same sort of impact."

Cuts in wholesale controls due 1 July will mean that consumers will effectively be able to do without BT altogether. They will be able to pay their line rental to their service provider of choice.