OFTEL (1994b) suggested and subsequently (1995b) proposed, that the RPI+2 constraint might be lifted. OFTEL conjectures that, because BT is subject to increasing competition in all sectors of the market, and reluctant to antagonise its customers by sharp changes in relative prices, it would not raise rental charges significantly if the RPI+2 constraint were removed.

One possible substitute for the RPI+2 constraint, proposed at the time of the review of the price cap for 1993-97, is to introduce a control on the median residential bill. The basket of telecommunications services purchased by the median residential customer contains a higher proportion of access payments and a lower proportion of calls than the overall tariff basket which forms the basis for BT's price control. It has been suggested that a combination of the overall tariff basket and an additional constraint on a median residential bill would prevent significant redistributive effects as a result of changes in relative prices within the basket. However, OFTEL rejected the suggestion to replace the RPI+2 constraint on quarterly rentals by a constraint on the median residential bill, as it became apparent that a requirement that the median residential bill remain constant in real terms or decline slowly could be consistent with quite sharp rises in real charges for subscribers whose usage of the telephone was less than that of the median residential customer. The impact upon such customers of increases in rental charges can, however, be mitigated by low user tariffs of the kind discussed in Section 1.5 below.

Initially BT's private circuit prices were not subject to regulation. After privatisation, the company increased them significantly, and in response to complaints from customers, OFTEL conducted an investigation which led to a decision to impose a price cap in 1989. The initial value of the cap was RPI+0. The cap was reviewed in 1993, and the decision was made to adopt an overall cap of RPI+0, with maximum individual increases of RPI+2 and RPI+1 on particular categories of analogue and digital circuits respectively.

The final price regulation issue to be noted concerned the treatment of quantity discounts. Under its licence conditions, BT is prevented from showing in its treatment of “undue discrimination” any category of its customers. Concerned about its loss of large customers, it sought permission in the 1980s to introduce optional calling plans - tariff packages which entitled large customers, on payment of an additional fixed fee, to purchase calls at a lower price.

The particular schemes proposed by BT in the 1980s were turned down by the regulator, on the ground that they would not be available to a sufficiently large number of customers. In 1991, however, as part of the duopoly review, BT gained OFTEL's agreement to introduce tariff packages subject to a variety of restrictions that no tariff should fall below fully allocated cost (which was taken as a “conservative” proxy for incremental cost); that the introduction of discounts to this cost level would be gradual; that BT should be able to show that the new packages brought tariffs more closely into line with costs; that such tariffs should be available to resellers; and that special arrangements should be made for a “low user” tariff.

In 1991, BT introduced tariff packages for both domestic and business subscribers in several forms. Initially, the discounts were only available to single sites, but subsequently the aggregation of many sites for discount purposes was permitted subject to the limitation that the